North Dakota Insurance Commissioner Jim Poolman has released a 39-page draft of a revised viatical model that would require most life insurance policyholders to hold policies at least 5 years before selling the policies.

Poolman, chairman of Life Insurance and Annuities Committee at the National Association of Insurance Commissioners, Kansas City, Mo., also has included a provision that would prohibit consumers from settling at any time prior to the application or issuance of the policy.

Exceptions to the 5-year moratorium would let consumers who have experienced major life changes, such as divorce or the death of a spouse, settle policies early.

The model also includes disclosure requirements for viatical settlement brokers, viatical settlement providers and life insurance companies.

The NAIC is considering the draft this week, at its fall meeting in St. Louis.

Poolman says he hopes the draft will be a starting point for discussion and that the full NAIC will approve a model by the end of the year, so that the model can be ready for insurance commissioners and state legislatures at the start of 2007.

Michael Lovendusky, associate general counsel with the American Council of Life Insurers, Washington, is praising the draft.

Draft provisions would prevent inappropriate life settlements while offering protection to a broad group of consumers, including consumers facing divorce, Lovendusky says.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, and an NAIC-funded consumer representative, says the draft “is a terrible proposal” that would be a “nuclear bomb for the secondary market.”

The proposal “not only takes away fundamental consumer rights of ownership and disposition of policies,” but also does not address the issue of stranger-owned life insurance, Birnbaum says.

“Regulators are letting insurance companies kill the secondary market without a policy debate,” Birnbaum says. “It reinstalls a monopoly for insurers.”

Doug Head, executive director of the Life Insurance Settlements Association, Orlando, Fla., says LISA disagrees with the limits on the sale of a contract outside the contestability period.

But the draft “is a step in the right direction,” Head says. “There are many good elements here.”

Scott Cipinko, who represents premium finance companies, calls the 5-year moratorium on most contract sales “troublesome.”

But the new draft does include interesting points, such as a provision that clarifies the definition of premium financing, Cipinko says.