New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on September 28, 2006, representing the position of the New York State Insurance Department.

Re: Viatical Settlements

Question Presented:

May the advertisement specified below be used in New York State?

Conclusion:

The New York State Insurance Department does not approve viatical settlement advertisements; however the proposed advertisement does not comply with requirements under the New York Insurance Law and regulations thereunder.

Facts:

The inquirer submitted for approval the following advertisement:

GET CASH FOR YOUR LIFE INSURANCE POLICY…

Now you can take advantage of this opportunity when you consider a Life Settlement. A Life Settlement is the sale of a [sic] insurance policy that gives the policy owner a cash settlement in excess of the current cash surrender value.

Empower Yourself To:

Fund a lifelong dream.

Take a long awaited vacation.

Make a charitable gift contribution.

Purchase a luxury item that was never affordable to you before.

Enjoy the money with friends and family.

Purchase a life product that better suits your financial needs.

You May Qualify If You Are:

Over the Age of 70 or living with an illness.

Call Today for a FREE non-binding appraisal!

Analysis:

The inquirer asked the New York State Insurance Department to approve the above advertisement.

The advertisement that the inquirer submitted appears to involve in some cases viatical settlements (although the advertisement refers to them as life settlements) because it includes the phrase "you may qualify if you are over the age of 70 or living with an illness". New York Insurance Law § 7801(c) defines a "viatical settlement" as follows

‘Viatical settlement’ means an agreement entered into between a viatical settlement company and a viator. The agreement shall establish the terms under which the viatical settlement company will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy, in return for the viator’s assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company.

New York Insurance Law § 7801(b) defines "viator" as follows:

‘Viator’ means the owner of a life insurance policy insuring the life of a person who has a catastrophic or life threatening illness or condition, who enters into an agreement under which the viatical settlement company will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company. Viator may also include a person insured under a group life insurance policy who is not prohibited from assigning his or her rights or benefits and who assigns those rights or benefits by a viatical settlement.

A viatical settlement company is defined in New York Insurance Law § 7801(a) as follows:

‘Viatical settlement company’ means an individual, partnership, corporation or other entity not prohibited from acting as a viatical settlement company . . . that enters into an agreement with a person owning a life insurance policy insuring the life of a person who has a catastrophic or life threatening illness or condition, under the terms of which the viatical settlement company pays compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy, in return for the policyowner's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company. . . .

New York Insurance Law § 7801(d) defines a viatical settlement broker:

‘Viatical settlement broker’ means an individual, partnership, corporation or other entity who or which for another and for a fee, commission, or other valuable consideration, offers or advertises the availability of viatical settlements, introduces viators to viatical settlement companies, or offers or attempts to negotiate viatical settlements between a viator and one or more viatical settlement companies. ‘Viatical settlement broker’ does not include an attorney, accountant or a person acting under a power of attorney from the viator, retained to represent the viator whose compensation is paid solely by the viator and without regard to whether a viatical settlement is effected devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company. Viator may also include a person insured under a group life insurance policy who is not prohibited from assigning his or her rights or benefits and who assigns those rights or benefits by a viatical settlement.

If the inquirer’s company intends to purchase policies from a viator, as that term is defined in New York Insurance Law § 7801(b) (McKinney 2006), their firm would be acting as a viatical settlement company and would need to be licensed as such pursuant to New York Insurance Law § 7802(a) (McKinney 2006). In addition, any person who offers or advertises the availability of such settlements would have to be licensed as a viatical settlement broker pursuant to New York Insurance Law § 7802(a) (McKinney 2006), unless the exemptions in New York Insurance Law § 7801(d) are applicable. It is not clear from the inquirer’s letter whether they are engaged in the business of viatical settlements and in which role they are engaged.

The Department does not approve viatical settlement advertisements; however, the specific advertisement submitted by the inquirer does not comply with the New York viatical settlement laws.

New York State Insurance Law requires that the marketing and advertisement of viatical settlements conform to certain standards. Specifically, § 380.7 of N.Y. Comp. Codes R. & Regs. tit. 11, pt. 380 (2006) (Regulation 148), entitled Marketing and Advertising, provides, in pertinent part:

(b) All advertising material by viatical settlement companies or brokers shall be subject to the applicable provisions of Part 219 of this Title (Regulation 34-A).

(c) Advertising material by viatical settlement companies or brokers which presents any statement identifying or describing any advantage or benefit of making a contract of viatical settlement shall:

(1) include a statement that receipt of payment pursuant to a viatical settlement may affect eligibility for public assistance;

(2) include a statement that receipt of payment pursuant to a viatical settlement may be taxable; and

(3) include a statement that the viator has a right to rescind a viatical settlement within 15 days of receipt of the viatical settlement proceeds.

Accordingly, with respect to viatical settlements, the advertisement that the inquirer provided does not meet the requirements in § 380.7 (c)(1)-(3) of the regulation quoted above in that it does not contain certain pertinent information required therein.

For further information please contact Principal Attorney Paul A. Zuckerman at the New York City Office.