New York State Seal

STATE OF NEW YORK

INSURANCE DEPARTMENT

25 BEAVER STREET

NEW YORK, NEW YORK 10004

David A. Paterson

Governor

James J. Wrynn

Superintendent

OGC Op. No. 10-10-01

The Office of General Counsel issued the following opinion October 21, 2010, representing the position of the New York State Insurance Department.

Re: Canadian Life Settlements

Questions Presented:

1. Does Chapter 499 of the Laws of 2009 (the “Life Settlement Act”) and the regulations promulgated thereunder apply to a New York licensed life settlement provider in New York who wishes to purchase a life insurance policy from a policy owner that resides in Canada?

2. Does the Life Settlement Act and the regulations promulgated thereunder apply to investors who reside in Canada and wish to purchase a life insurance policy from a New York resident who is a family member or friend of the Canadian investors?

3. May a financial advisor suggest that a New York resident consider selling his or her life insurance policy to family members or friends who reside in Canada, and then facilitate the sale of the life insurance policy without being a New York licensed life settlement broker?

Conclusions:

1. No. So long as the life settlement contract is not made, proposed to be made, or solicited with a New York resident or any policy owner physically located in New York, the provisions of the Life Settlement Act and the regulations promulgated thereunder that govern life settlement contracts do not apply to a New York licensed life settlement provider in New York who wishes to purchase a life insurance policy from a policy owner who resides in Canada.

2. No. Assuming that the life insurance policy owner is also the insured, the Life Settlement Act and the regulations promulgated thereunder that govern life settlement contracts would not apply to any agreement between a policy owner and an investor to assign, transfer, sell, release, devise or bequest an insurance policy or any portion thereof to the investor, if the investor is closely related to the life insurance policy owner by blood or law, because the agreement is excluded from the definition of a “life settlement contract” pursuant to N.Y. Ins. Law § 7802(k)(3)(H). Nor would the Life Settlement Act and the regulations promulgated thereunder that govern life settlement contracts apply to an agreement between a policy owner and an investor if the investor does not enter into any other agreement with a policy owner to take an assignment, purchase, or otherwise receive the death benefit or ownership of any portion of a policy or policies on the life of any other insured or lives of any other joint insureds in one calendar year, because the agreement is excluded from the definition of a “life settlement contract” pursuant to Insurance Law § 7802(k)(3)(F).

3. It depends. An accredited financial advisor (or financial planner) who is retained as a financial advisor, does not advertise as being in the business of life settlements, and whose compensation is not contingent upon the sale of the life insurance policy or any portion thereof, may suggest that a New York resident look into selling his or her life insurance policy. If, however, the financial advisor receives a fee that is contingent upon the sale of the life insurance policy or any portion thereof, then the financial advisor would be required to be licensed by New York as a life settlement broker.

Facts:

The inquiry is of a general nature, without reference to particular facts.

Analysis:

1. Purchasing a Policy from a Canadian Resident

The inquirer asks whether the Life Settlement Act and regulations promulgated thereunder apply to a New York licensed life settlement provider in New York who wishes to purchase a life insurance policy from a policy owner who resides in Canada.

Because the life settlement provider is in New York and is entering or offering to enter into a life settlement contract with a policy owner, the life settlement provider must be licensed as such in New York, which is the case here. With regard to the provisions of the Life Settlement Act and the regulations promulgated thereunder that govern life settlement contracts, Insurance Law § 7819(a) is relevant to the inquiry, and states that “[t]he provisions of this article shall apply to any life settlement contract made, proposed to be made, or solicited with a resident of this state or any owner physically in this state.” Therefore, so long as the life settlement contract is not made, proposed to be made, or solicited with a New York resident or any policy owner physically located in New York, the provisions of the Life Settlement Act and the regulations promulgated thereunder that govern life settlement contracts do not apply to a New York licensed life settlement provider in New York who wishes to purchase a life insurance policy from a policy owner who resides in Canada.

2. Canadian Investors Purchasing a Policy from a New York Resident

The inquirer further asks whether the Life Settlement Act and the regulations promulgated thereunder apply to investors who reside in Canada and wish to purchase a life insurance policy from a New York resident who is a family member or friend of the Canadian investors.

Insurance Law § 7802(k) is relevant to the inquiry, and states that:

(k)(1) “Life settlement contract” means an agreement establishing the terms under which compensation is provided to an owner, which compensation is less than the expected death benefit of the policy, in return for the assignment, transfer, sale, release, devise or bequest of any portion of:

(A) the death benefit;

(B) the ownership of the policy; or

(C) any beneficial interest in the policy, or in a trust or any other entity that owns the policy, where a primary purpose of the transaction is to acquire the policy.

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(3) “Life settlement contract” shall not include:

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(F) an agreement made by an individual to take an assignment, purchase, or otherwise receive the death benefit or ownership of any portion of a policy or policies on the life of a single insured or lives of joint insureds; provided that, in a calendar year, the individual enters into no other agreement to take an assignment, purchase, or otherwise receive the death benefit or ownership of any portion of a policy or policies on the life of any other insured or lives of any other joint insureds;

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(H) an agreement where all the parties are closely related to the insured by blood or law or have a lawful substantial economic interest in the continued life, health and bodily safety of the person insured, or are trusts established primarily for the benefit of such parties [….]

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Therefore, the definition of a life settlement contract excludes an agreement: (1) made by an individual to purchase or otherwise receive the death benefit of a life insurance policy, so long as the individual does not enter into any other such agreements during the calendar year; or (2) where all parties are closely related to the insured by blood or law or have a lawful substantial economic interest in the continued life, health and bodily safety of the insured.

As a preliminary matter, the location of the investor is irrelevant when determining whether the Life Settlement Act and the regulations promulgated thereunder that govern life settlement contracts apply to investors who reside in Canada and wish to purchase a life insurance policy from a New York resident who is a family member or friend of the investors, because these provisions only apply to a life settlement contract made, proposed to be made, or solicited with a New York resident or any policy owner physically located in New York, regardless of the residence of the investor. See Ins. Law § 7819(a).

Assuming that the policy owner is also the insured, the Life Settlement Act and the regulations promulgated thereunder that govern life settlement contracts would not apply to any agreement between a policy owner and an investor to assign, transfer, sell, release, devise or bequest an insurance policy or any portion thereof to the investor, if the investor is closely related to the life insurance policy owner by blood or law, because the agreement is excluded from the definition of a “life settlement contract” pursuant to Insurance Law § 7802(k)(3)(H). Nor would the Life Settlement Act and regulations promulgated thereunder that govern life settlement contracts apply to an agreement between a policy owner and an investor if the investor does not enter into any other agreement to take an assignment, purchase, or otherwise receive the death benefit or ownership of any portion of a policy or policies on the life of any other insured or lives of any other joint insureds in the same calendar year, because the agreement would be excluded from the definition of a “life settlement contract” pursuant to Insurance Law § 7802(k)(3)(F).

3. Facilitating the Sale of a Life Insurance Policy

The inquirer also asks whether a financial advisor may suggest that a New York resident consider selling his or her life insurance policy to family members or friends who reside in Canada, and then facilitate the sale of the life insurance policy, without being a New York licensed life settlement broker. Insurance Law § 7802(j) defines a “life settlement broker” as

[A] person who, for compensation, solicits, negotiates or offers to negotiate a life settlement contract; except that such term shall not include a licensed life settlement provider, or representative thereof, licensed attorney at law, certified public accountant, or financial planner that is accredited by a nationally recognized accreditation agency acceptable to the superintendent, who is retained in his or her professional capacity, does not advertise as being in the business of life settlements and is compensated without regard to whether a life settlement contract is effectuated.

Therefore, a life settlement broker is a person who, for compensation, solicits, negotiates or offers to negotiate a life settlement contract. However, excluded from the definition of life settlement broker is a licensed life settlement provider, licensed attorney, certified public accountant, or an accredited financial planner, who is retained in his or her professional capacity, does not advertise as being in the business of life settlements, and whose compensation is not contingent upon the sale of the life insurance policy or any portion thereof.

Accordingly, an accredited financial advisor (or financial planner) who is retained as a financial advisor, does not advertise as being in the business of life settlements, and whose compensation is not contingent upon the sale of the life insurance policy or any portion thereof, may suggest that a New York resident look into selling his or her life insurance policy. If, however, the financial advisor receives a fee that is contingent upon the sale of the life insurance policy or any portion thereof, then the financial advisor would be required to be licensed by New York as a life settlement broker.

For further information, you may contact Senior Attorney Joana Lucashuk at the New York City Office.