New York State
Eric R. Dinallo Superintendent of Insurance 25 Beaver Street New York, N.Y. 10004
|ISSUED 03/23/2009||FOR IMMEDIATE RELEASE|
The New York State Insurance Department has proposed legislation regulating life settlements, financial transactions that occur when individuals sell their life insurance policies for more than the surrender value, but less than the death benefits.
The Insurance Department proposed life settlement regulation in a bill introduced to the State Legislature. The bill calls for a comprehensive framework for regulating the transactions, which are not currently regulated in New York.
“Life settlements can be ripe for abuse. In these times of economic uncertainty, there is strong pressure on people pressed for cash to sell valuable assets, such as life insurance policies. This bill protects consumers by establishing a transparent marketplace with specific licensing, registration and disclosure requirements. That means consumers will be given the critical information they need to make a decision in a life settlement transaction, including the value of offers and counter-offers, the fees paid to life settlement brokers and the contractual arrangements among the parties involved in a transaction,” said Insurance Superintendent Eric Dinallo.
The proposed legislation calls for licensing requirements for life settlement providers and life settlement brokers, as well as registration requirements for life settlement intermediaries. It also proposes establishing privacy protections and other safeguards for insured individuals and policyowners.
A life settlement typically occurs when an older individual decides he or she no longer needs or wants a life insurance policy. By selling the policy, the policyowner can receive a monetary value greater than is possible by surrendering it to the life insurance company.
Life settlement brokers bring together policy owners with providers who buy the policies. In some cases, policies are sold to providers in an auction-like process conducted by life settlement intermediaries. The policies purchased by life settlement providers are often then sold to investors in a secondary market, who seek to profit upon the death of the insured individuals.
The law currently regulates viatical settlements, transactions involving the sale of life insurance policies by insured individuals who have a catastrophic or life-threatening illness or condition. A life settlement involves the sale of a life insurance policy without regard to the insured person’s health.
Under the proposed legislation, the Insurance Department would have the authority to issue, revoke, suspend or non-renew life settlement provider and life settlement broker licenses. It would require the registration of life settlement intermediaries who maintain electronic or other systems that facilitate life settlement transactions. Additionally, it would give the Department prior-approval authority for contract forms used in transactions.
The legislation would establish numerous safeguards for insured individuals and policyowners. These would include protection against unlawful release of all information concerning the identity of an insured individual or policy owner, without the consent of the insured.
The legislation would also require:
The proposed legislation also specifically prohibits life settlement providers and brokers from engaging in stranger-owned life insurance (STOLI), a practice in which a life insurance policy is purchased for the benefit of someone, who at the time of policy issuance, has no insurable interest in the life of the insured individual.
The Insurance Department drafted the proposed legislation following a series of four public hearings last year to gather consumer input. The Department also solicited the views of life settlement providers, life settlement brokers, life insurers, life insurance agents, investors and trade associations.
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