NCOIL Releases Latest Draft of Life Settlements Model

The authors of the NCOIL draft say they accepted the recommendations of life insurers to include a provision that would require life settlement brokers to warn the policyholders in writing about any ties the brokers might have with the parties offering to buy the policies.

The NCOIL draft authors also accepted the life insurers’ suggestion that the definition of a life settlement contract should include “the transfer for compensation or value of ownership or beneficial interest in a trust or other entity that owns such policy if the trust or other entity was formed or availed of for the principal purpose of acquiring one or more life insurance contracts.”

The authors of the NCOIL draft say they drew on life settlement providers’ suggestion for a section on disclosure to insurers designed to “permit insurers to protect prospective life insurance policyowners from being victims of stranger-originated life insurance schemes.”

The wording offered in the draft states that carriers may determine in the insurance application if the proposed owner intends to pay premiums with the assistance of a loan from a lending institution that will use the policy as collateral for the loan.

The authors also took the life settlement providers’ advice to include a provision that would require life settlement licensees to provide insurance regulators only with information about transactions involving policy owners who live in those regulators’ states. The providers would not have to provide individual transaction data that “could compromise the privacy of personal, financial and health information of the owner or the insured.”

The draft authors turned to premium finance industry representatives for wording of a provision dealing with “premium finance loans.”

According to the definition given in the draft, a premium finance loan is “a loan made primarily for the purposes of making premium payments on a life insurance policy, which is secured by an interest in such life insurance policy and where the borrower and owner have an insurable interest in the life of the insured, provided that the lender’s interest in the policy does not exceed the amount due under the loan, including principal, interest, costs of collection and other permitted loan costs and fees.”

A premium finance loan “shall not include any agreement by which the borrower, owner or insured receive a guarantee of settlement value or a monetary inducement to purchase the life insurance policy, or any agreement for future sale or settlement of the life insurance policy,” according to the draft. “A premium finance loan shall not include an agreement for direct or indirect transfer of ownership or control of the life insurance policy except to the extent of enforcement of the lender’s legitimate security interest in the life insurance policy.”