Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Life Insurance

The California Life Settlement Act: What You Need to Know

Your article was successfully shared with the contacts you provided.

After months of development since Gov. Schwarzenegger signed the California Life Settlement Act on Oct. 11, 2009, California has issued its “emergency rules” for the industry, which will take effect on July 29, 2010. Last-minute delays may interfere, but the consumers of California will at last be protected in settling their insurance policies.

But like allgood things, this issue full of potential problems if agents fail to clearly look at the Legislature’s intent and the details of the rules as developed. Here are a few noteworthy issues to pay attention to.


From now on, people who don’t have authority from California to act as life producers can’t act as brokers in the state unless they have an old-fashioned viatical settlement broker license (which very few have) or want to go through the fairly rigorous process of obtaining a viatical settlement broker license. Having a license as a producer is not enough, however; producers and agencies who wish to operate in this field for the benefit of their customers have to notify the department of insurance using form 2548.19 and pay a fee of $128.

The method for notifying the department is surprisingly straightforward (LIC 441-20N of the rules), but it does contain some clauses that state the professional insurance producer must certify that they are licensed and havereviewed 10113.1 through 10113.3 (the settlement law) and Title 10, Section 2548.1-2548.31 (the rule), and to say that they “thoroughly understand” the rule.

Given this complicated process, some may want to take the classroom route of obtaining a broker license. Anyone exercising California authority under the old law has a year to comply, but meanwhile, anybody who has not been licensed as a producer for at least one year in California should not engage in settlement transactions in California. Offering or attempting to negotiate a contract (successful or not) is the licensing trigger, so interested brokers should get those notification forms flowing and read the law and rule.

Business entities must, at a minimum, employ a producer with this authority and must themselves be registered as businesses in this space. They must file a business entity broker application (24548.23), supplemented by an endorsement of the agency of its personnel who are authorized and, themselves, qualified for this business.

Once a producer or agency reads the rule, they will find other issues.

Disclosures are required and the department offers a safe harbor in a document called the Life Settlement Licensee Disclosure to Life Settlement Applicant (Section 2548.27 of the rule) and the Life Settlement Broker Disclosure to Owner and Insured (Section 2548.28). These must be used together, or the broker must file antoher form of their own devise and have it approved . We recommend the default forms, which do many things to protect both the owner and the producer acting as a settlement broker – especially the exchange of information. These forms follow the laws as enacted.

It is significant that the second form requires the broker to demonstrate some considerable effort by describing the offers made for the policy and by whom those offers were made, the “affiliation or contractual arrangement” between the broker and the provider, and any life expectancies the insured provides the broker. The latter seldom enters into the conversation, as they are not normally provided to the insured, but used by providers and often not even given to the broker. The policy owner is required to sign off on these documents. t closing, another document about the broker’s activity will go to the policy seller from the provider. This will describe the provider’s compensation for the broker, and must be signed by the seller.

The broker cannot do business with entities not licensed or authorized in California; a list of licensed entities should be soon be available on the California Department of Insurance site.

Other considerations

For five years after the transaction, brokers are required to keep records of their activity, including “efforts to shop” and a copy of the final agreement. So brokers must set up a file and keep their correspondence and all for the forms above. The commissioner can review these at his discretion.

The law still does not address the issue of consumer awareness of the settlement option, so it is up to the agent to look out for their client. However, the activity of licensees in this space will help to move the market toward the attention to the fact of settlements as legitimate options which can help a lot of consumers.

All these provisions will help to ensure that the option of a settlement exists for agents who want to assist their clients with a full range of options. The hurdles may eventually prove to be too difficult, but the nation’s biggest life insurance market will now have a regulatory process encouraging development of the settlement option for consumers. Time will tell if this law will also protect and empower the consumers of California.

When consumers know all they can do with their insurance to ensure that a policy’s value stays with them and not the insurer who issued the policy, they will seek the help of agents to exercise their right and use a great product in all of the ways it can be used. Opponents will not be able to argue that the industry is unregulated and therefore a great threat to the welfare of the elderly. As long as they are fully educated, seniors will be able to make up their own minds. Knowing more, they will buy more, and producers who know this and are prepared to help will be the preferred agents.

Doug Head is the executive director of LISA – the Life Insurance Settlement Association. He can be reached at [email protected] or (07-894-3797.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.