As mentioned earlier, government regulators tend to react to past problems. In an effort to curb some of the abuses that have occurred in this new market, many states have enacted regulations governing the viatical industry. Some states view the industry as providing investment opportunities to the purchasers of viaticated policies. These states design their rules from a securities point of view and give the state securities regulators jurisdiction over these transactions. Other states look at the sale of insurance policies as an insurance matter, to be governed in the context of insurance regulations. To assist those states, the National Association of Insurance Commissioners -- aided by two viatical trade organizations and other insurance industry associations -- drafted a model law in 1994: the Viatical Settlements Model Act.
Some states have adopted that Model Law, others have drafted their own legislation. To date the federal government has allowed the individual states to regulate the viatical industry. The only current federal rules on viatical settlements deal with the tax consequences of the sale. Each state is free to adopt its own legislation. Currently 35 of the 51 jurisdictions (including the District of Columbia) regulate viatical settlement in some fashion.
The regulation of lifetime settlements is a "hot" topic among regulators, and state laws are subject to change. It is important that those involved in arranging lifetime settlements be aware of the regulations that apply in their respective states.