Since viatical or senior settlements may not be suitable for all insureds, even those who are terminally ill, it is critical that someone considering selling his or her life insurance policy to a third party be provided with a full disclosure of all material facts before settlement.
The Viatical Settlements Model Act mandates that certain disclosures be made no later than the time that the viator makes application to sell his or her policy and that certain other disclosures be made before the viatical settlement contract is signed by all of the parties. Viatical Settlement Providers that have joined industry trade associations must also adhere to their organization's disclosure rules -- which, in some cases, are addition to those required by law.
Please note: some states have enacted laws similar to this Model Act, others have not. Before engaging in a lifetime settlement, be sure to review the specific laws and rules that apply to your jurisdiction.
Letís turn our attention to these mandated disclosures.
The Viatical Settlements Model Act
The Viatical Settlements Model Act requires the viatical settlement provider to present the viator with at least the following disclosures no later than the time the application for the viatical settlement contract is signed by all parties. The viatical settlement provider may, of course, offer additional disclosures. The following list of disclosures, however, must be given to the viator in a separate document that must be signed by the viator and the viatical settlement provider or broker.
There are possible alternatives to viatical settlement contracts, including any accelerated death benefits or policy loans offered under the viatorís life insurance policy.
Some or all of the proceeds of the viatical settlement may be taxable under federal income tax and state franchise and income taxes, and assistance should be sought from a professional tax advisor.
Proceeds of the viatical settlement could be subject to the claims of creditors.
Receipt of the proceeds of a viatical settlement may adversely affect the viatorís eligibility for Medicaid or other government benefits or entitlements, and advice should be obtained from the appropriate government agencies.
The viator has the right to rescind a viatical settlement contract for fifteen (15) calendar days after the receipt of the viatical settlement proceeds by the viator; if the insured dies during the rescission period, the settlement contract shall be deemed to have been rescinded, subject to repayment of all viatical settlement proceeds and any premiums, loans and loan interest to the viatical settlement provider or purchaser.
Funds will be sent to the viator within three (3) business days after the viatical settlement provider has received the insurer or group administratorís acknowledgment that ownership of the policy or interest in the certificate has been transferred and the beneficiary has been designated.
Entering into a viatical settlement contract may cause other rights or benefits (including conversion rights and waiver of premium benefits) that may exist under the policy or certificate to be forfeited by the viator. Assistance should be sought from a financial advisor.
Disclosure to a viator shall include distribution of a brochure describing the process of viatical settlements. The NAICís form for the brochure shall be used unless one is developed by the commissioner.
The disclosure document shall state the following: ďAll medical, financial or personal information solicited or obtained by a viatical settlement provider or viatical settlement broker about an insured, spouse or a significant other may be disclosed as necessary to effect the viatical settlement between the viator and the viatical settlement provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides funds for the purchase. You may be asked to renew your permission to share information every two years.Ē
The insured may be contacted by either the viatical settlement provider or broker or its authorized representative for the purpose of determining the insuredís health status. This contact is limited to once every three (3) months if the insured has a life expectancy of more than one year, and no more than once per month if the insured has a life expectancy of one year or less.
In addition to the disclosures that must be made to the viator before completion of the application, the following disclosures must be made to the viator no later than the date the viatical settlement contract is signed by all parties.
The affiliation, if any, between the viatical settlement provider and the issuer of the insurance policy to be viaticated.
The name, address and telephone number of the viatical settlement provider.
The amount and method of calculating the brokerís compensation. The term compensation includes anything of value paid or given to a viatical settlement broker for the placement of a policy.
If an insurance policy to be viaticated has been issued as a joint policy or involves family riders or any coverage of a life other than the insured under the policy to be viaticated, the viator must be informed of the possible loss of coverage on the other lives under the policy and must be advised to consult with his or her insurance producer or the insurer issuing the policy for advice on the proposed viatical settlement.
The dollar amount of the current death benefit payable to the viatical settlement provider under the policy or certificate. If known, the viatical settlement provider shall also disclose the availability of any additional guaranteed insurance benefits, the dollar amount of any accidental death and dismemberment benefits under the policy or certificate and the viatical settlement providerís interest in those benefits.
The name, business address and telephone number of the independent third-party escrow agent, and the fact that the viator or owner may inspect or receive copies of the relevant escrow or trust agreements or documents.
The National Viatical Association, a leading viatical industry association, has proposed that the following disclosures be made to the seller under a senior settlement no later than the time of application.
Other rights and benefits, such as disability benefits, conversion or particular riders on the policy, may exist under the policy and may be forfeited by the settlement. Seniors should contact their insurance carrier for additional information.
Some or all of the proceeds of the senior settlement may be subject to federal income tax and state franchise and income taxes. Seniors should seek assistance from a professional tax advisor.
Proceeds of the settlement could be subject to the claims of creditors.
Receipt of the proceeds of a senior settlement may adversely affect a seniorís eligibility for Medicaid or other government benefits or entitlements. They should consult the appropriate government agencies for advice.
Acceptance of this application does not in any way constitute or guarantee the purchase of a seniorís life insurance policy. The information contained within may be used for evaluation purposes only. Any information obtained may be used or disclosed to other parties for qualification purposes in order to effect or facilitate the settlement transaction.
Seniors may qualify for a viatical settlement should their life expectancy be 48 months or less. They should consult their financial advisor for further advice.
The Viatical and Life Settlement Association of America (VLSAA), which focuses on purchasers of viaticated policies, requires its members to make the following disclosures:
annual return is based on the insuredĎs life expectancy, which cannot be guaranteed
the identity of the party responsible for payment of future premiums.
possible future premium payments due to improved health or reaching a limiting age under a waiver of premium provision
the identity of the person who evaluated the insuredís life expectancy
in the case of group coverage, possible termination of the group policy by the group owner and possible actions necessary to keep the coverage in force
the contestability of any possible claims by the insurance company under the contestability period, suicide clause, etc.
that investments in viaticated policies are illiquid, and
proper disclosure of company experience in regard to illustrations or example of past performance.