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Life Health > Life Insurance

NCOIL Releases Life Settlement Model Draft

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The National Conference of Insurance Legislators has released a new Life Settlements Model Act draft.

Members of NCOIL, Troy, N.Y., say they will wait to talk to insurance and securities regulators before tackling some sections of the draft.

NCOIL has deferred completion of work on definitions for terms such as “broker,” “life settlement investment agent” and “purchaser.”

NCOIL also has deferred completion of a section concerning the parameters that should govern the actions of a life settlement investment agent and a section concerning what, in the solicitation of a sale of a purchase agreement, would be considered fraudulent and unlawful.

Members of the team that developed the latest model draft say they accepted several suggestions for amendments that came from state Sen. James Seward, R-Milford, N.Y.

Seward recommended that the model:

–Prohibit a person or trust from directly or indirectly marketing, advertising or soliciting the purchase of a policy with the sole goal of settling it.

–Prohibit the use of the words ‘free’ or ‘no cost’ in any marketing or advertising.

–State that at no time prior or for any period up to 2 years following the issuance of the policy should a person enter into an agreement to settle a policy. But that suggested provision would create exceptions for policyholders who suffer from terminal or chronic illness, and it also would create exceptions for policyholders who bought coverage when they owned stakes in closely held corporations and later arranged to dispose of their ownership interests.

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.”


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