Insurance producers who want to transact life settlements need to check the settlement licensing rules in the states where they want to do business.
That’s because the rules are changing, and they vary from state to state.
The culprit is all the new life settlement legislation has come on the books in recent years, says Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla.
Five years ago, only about five states had life settlement laws, he says. But today, 40 states have these laws, and many of them differ in licensing requirements as well as in other areas.
The states may ask producers to take prelicensing and continuing education courses, supply current licensure details, and provide fingerprints, photos, background information on prior crimes, administrative proceedings, bankruptcies or judgments, tax delinquencies, and more.
No two states are alike, and if the producer has clients who reside in other states, the producer will need to be licensed in the producer’s home state and the client’s home state, Head says. So knowing what other states are doing is important too, he says.
The Illinois insurance department recently released settlement licensing regulations to comply with the new Illinois Viatical Settlement Act of 2009.
Under these requirements, resident and non-resident producers who want to do life settlements in Illinois must have both a life insurance license and a life settlement license, says Marshall Lipson. He is managing director-professional development for the Society of Financial Service Professionals, Newton Square, Pa., which does education programs in the state.
To get the settlement license, resident life-licensed producers must take a four-hour course and pass the exam, Lipson says. Even veteran producers who have been licensed to sell life insurance in Illinois for, say, 30 or 40 years, must have both an Illinois life license and an Illinois settlement license, he says.
“If an Illinois producer has a life license but not the settlement license and if a client needs help with a life settlement, that producer can’t do the settlement or even discuss it with the client,” Lipson continues.
That producer can’t talk about “anything” that may lead to a client decision to sell, or not to sell, a life policy, he emphasizes.
This is so even if the client resides in one of the four states–Washington, Oregon, Maine and Kentucky–that require disclosure to clients about all options available to them, including life settlements, if policy lapse is imminent. That can create problems for Illinois agents that don’t have both licenses, Lipson continues, because policyowners who receive a disclosure notice from the insurer might go back to the agent and ask, “Why didn’t you tell me about this?”
As for non-resident producers, they must obtain an Illinois non-resident life producer license, be licensed as a life producer in their home state for at least one year, and complete Illinois’ four-hour training course in life settlements or take courses in their home state that the Illinois department has approved, Lipson says.
What about some other states?
Wisconsin has licensing and education rules similar to those of Illinois, Lipson says.
Kentucky requires producers to take a pre-licensing course and four hours of continuing education every four years, says Brian Staples, president of Right LLC, Versailles, Ky.
But New York takes a different tact. It says applicants who do not hold a life license in New York must pass a “life settlement broker prelicensing course.” However, those who do hold a current life agent or life broker license may waive the prelicensing education and licensing exam requirements, says Lipson, provided that the license has been in effect in New York for at least one year.
Those holding a CLU or CLUA designation can also get New York waivers.
On the other side of the country, California says that those who want to sell settlements in that state, and who have not been licensed as California life agents for at least a year, must obtain a “life settlement broker license.” To do that, they must take a 15-hour education course in life settlements.
But agents who have been transacting life settlements for over one year do not need to complete the coursework, the California department says. Instead, these agents must “notify” the department of their intention to continue doing life settlements. The web-based notification must be renewed every 2 years, and accompanied by a fee each time.
New life-licensed agents in California will still need to bone up on settlements, however. That’s because the California department has added several questions about life settlements to its examinations for traditional life-and-health and life-only producer licenses.
The California “notification” provisions point up a curious wrinkle in some of the laws, Staples says. While some states specifically call for settlement licensure, others say life-licensed producers must make “notification” or “registration” of their intent to do settlement business in the state without specifically calling for licensure.
In many cases, Staples says, this has the same effect as licensure–because the requirements for “notifications” and “registrations” often include requests for completed applications and submission of fees. But the language used is different, and that can cause confusion.
Still other states make it relatively easy for producers to enter the settlement business. For instance, “in Florida, life-licensed producers only need to log onto the state’s producer’s life licensing database and indicate, beside their name, that they are now a life settlement broker in Florida,” Staples says. “Once that’s done, the producer can sell life settlements in Florida. It takes only five minutes.”
Altogether, about 30 of the 40 states that have viatical and settlement laws that “require some type of licensing of producers who want to do life settlements,” Staples says.
For that reason, producers need to check the requirements with the insurance department of each state in which they want to do settlement business, he says.
“Yes, it will cost money and time to obtain those licenses or make the notifications,” he concedes. “But then you won’t get caught in the trap of not being able to talk about life settlements with a client.
“And if the client resides in Kentucky and wants to talk about settling a policy when you reside in Illinois, you will then be able to help the client if you have licenses from both states.”
The differing rules may seem complex, points out LISA’s Doug Head. “But the key thing to remember is that most producers who have life lines of authority will be qualified to do business in their state,” he says.
Adding to the challenge
The expansion of life settlement licensing affects brokers, too
The wide variety of life settlement licensing laws that exists today is impacting settlement brokerages as well as producers, according to a brokerage executive.
“It requires resources for brokers who operate nationally to comply with all the requirements” for licensing of producers and providers, explains Cyndi Poveda, vice president-secondary markets for Crump Life Insurance Services, Cleveland, Ohio.
National firms may need a dedicated compliance officer or an attorney on site to perform all the required duties, she says, “but not all brokers have the capacity for that.” This is especially so since the states vary so much in their settlement laws, including settlement licensing laws, she indicates.
As a result, the trend has been toward consolidation among brokerages, use of partnerships or use of outsourcing for certain functions, Poveda says. “Some firms have had reductions in staff, too,”
Those changes have not impacted on the flow of business to the firms, she says. But producers should be sure to check whether the brokerages they use for settlement transactions have the resources to do the job and have the appropriate licenses, she says.
“A good place to start this discussion is to ask the broker to describe the firm’s legal and compliance staff,” Poveda says, adding that producers should also inquire about whether this talent is located on-site or elsewhere.
They should also ask the other due diligence questions they would normally ask when seeking a broker, she says.