California Gov. Arnold Schwarzenegger has signed a bill aimed regulating life settlements and imposing a state ban on stranger-originated life insurance policies.
California defines a life settlement as the sale of an existing life insurance policy to a third party for more than its cash surrender value but less than its net death benefit.
In a STOLI arrangement, investors with no relationship to the insured initiate the purchase of the policy and pay the premiums.
The new law, S.B. 98, prohibits policy owners from entering into a life settlement for 2 years after a policy is issued.
S.B. 98 was sponsored by state Sen. Ron Calderon, D-Montebello, Calif., chair of the California Senate Banking, Finance And Insurance Committee.
The newly enacted law includes the following provisions:
- Requires individuals brokering or soliciting life settlement transaction in the state to be licensed by the state insurance commissioner after completing 15 hours of state-approved training in settlements.
- Forbids insurers from restricting lawful transfers of policy ownership.
- Requires agents and brokers arranging settlements to disclose to insureds all offers made on their policy and to divulge any business relationship, including compensation, with any person making an offer on a policy.