Editor’s Note: Once a year the Idaho State Legislature meets to create new laws, change current laws, or remove laws that are no longer applicable. With the recent scrutiny of the Insurance industry and with the possibility of Federal Healthcare reform, many states are making changes to their Insurance laws, Idaho being one of those states.
If you are preparing for the Insurance exam, it is in your best interest to be up-to-date with these changes. There may be new or modified Idaho Insurance laws that I don’t cover – I’ll only mention laws that you will see on your Insurance exam. If you want, you can take a look at the current Idaho Test Content Outline here. Although have the coffee ready – zzzzzzzz
Idaho Life Insurance Exam Updates
Idaho Life Settlements Act
Licensing of Life Settlement Brokers and Providers
Life Settlement Providers and Life Settlement Brokers must be licensed as Life Producers and notify the Director within 10 days of first acting as a Life Settlement Broker or Provider.
Each Life Settlement Provider must by March 1st file with the Director an annual statement detailing all life settlement activities.
The Insured’s identity, financial, and medical information must be kept confidential.
Prior to use, life Settlement contracts, disclosure forms, and advertising materials must be filed with the Director of Insurance.
Life Settlement Brokers and Producers must keep copies of all life settlement records for 5 years.
Disclosure to Policy Owner Upon Application – The Life Settlement Provider or Broker must disclose to the applicant no later than at the time of application that:
- There are possible alternatives to life settlement contracts including accelerated death benefits or policy loans;
- That a Life Settlement Broker owes a fiduciary duty to and represents only the policy owner, and not the Insurer or the Life Settlement Provider;
- Some or all of the proceeds of the life settlement may be taxable under federal and state law, and assistance should be sought from a professional tax advisor;
- Proceeds of the life settlement could be subject to the claims of creditors; and
- Receipt of the proceeds of a life settlement may adversely affect the owner’s eligibility for Medicaid and advice should be obtained from the appropriate government agencies.
The disclosure to the policy owner must include the brochure Selling Your Life Insurance Policy: Understanding Life Settlements disclosing that:
All personal information obtained about the Insured may be disclosed to someone who buys the policy. You may be asked to renew your permission to share information every 2 years.
Disclosure to the Policy Owner by the Life Settlement Broker
The Life Settlement Broker must provide the owner with at least the following disclosures prior to the time the owner signs the life settlement contract:
- The name, business address and telephone number of the Life Settlement Broker;
- A full, complete and accurate description of all offers, counteroffers, acceptances and rejections relating to the proposed life settlement contract;
- A written disclosure of any affiliations between the Life Settlement Broker and any person making an offer in connection with the proposed life settlement contracts;
- The amount and method of calculating the Broker’s compensation; and
- If any portion of the Life Settlement Broker’s compensation is taken from a proposed life settlement offer, the Life Settlement Broker must disclose the total amount of the life settlement offer and the percentage of the life settlement offer comprised by the Life Settlement Broker’s compensation.
Disclosure to the Policy Owner by the Life Settlement Provider
The Life Settlement Provider must provide the owner with at least the following disclosures prior to the time the owner signs the life settlement contract:
- The affiliation, if any, between the Life Settlement Provider, the Settlement Broker, and the Insurer;
- The name, business address and telephone number of the Life Settlement Provider;
- If an insurance policy to be settled 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 settled, the possible loss of coverage on the other lives under the policy;
- The dollar amount of the current death benefit payable under the policy; and
- The name, business address and telephone number of the independent third party escrow agent, and the fact that the owner may inspect or receive copies of the relevant escrow documents.
Policy Owner’s Written Consent
Prior to execution of the life settlement contract, the Life Settlement Provider must obtain a witnessed notarized document in which the owner acknowledges:
- that he or she is entering into the life settlement contract freely and knowingly;
- that he or she consents to the release of medical records; and
- that the Insured has a terminal or chronic illness that was diagnosed after the life insurance policy was issued.
Role of the Policy Owner’s Physician
A Life Settlement Provider entering into a life settlement contract must first obtain a statement from a licensed physician that the Policy Owner is of sound mind.
Notice to Existing Insurer
The Life Settlement Provider has 20 days to give written notice to the Insurer that the policy is going to be sold through a settlement contract.
The Life Settlement Provider must deliver to the Insurer:
- a copy of the Insured’s medical release;
- a copy of the application for the life settlement contract; and
- a request for verification of the policy’s coverage.
The Insurer must verify the policy’s coverage within 30 days and must indicate whether the Insurer intends to investigate the validity of the policy or the existence of fraud.
Role of an Escrow Agent
The Life Settlement Provider must instruct the policy owner to send the executed change of ownership documents to an independent Escrow Agent.
Within 3 days after the date the Escrow Agent receives the documents, the Settlement Provider must pay the settlement proceeds to an escrow account maintained in a state or federally-chartered financial institution whose deposits are insured by FDIC.
The Escrow Agent will then submit the policy owner’s change of ownership documents to the Settlement Provider and pay the settlement proceeds to the policy owner within 3 days.
Life Settlement Rescission by the Policy Owner
The Policy Owner has the right to rescind the life settlement contract within 20 days of signing.
If the Insured dies during the rescission period, the life settlement contract will automatically be rescinded, subject to repayment of the life settlement proceeds.
In the settlement contract is rescinded, the Life Settlement Broker must refund the commission to the Settlement Provider within 5 days of request.
Following execution of a life settlement contract, the Insured may be contacted for the purpose of determining the Insured’s health status, address, and telephone number.
Follow-up contact with the Insured is restricted to:
- once every 3 months if the Insured has a life expectancy of more than one 1 year, and
- once per month if the Insured has a life expectancy of one 1 year or less.”
Resale of the Life Settlement Contract
When the Life Settlement Provider changes the beneficiary or transfers ownership, the Insured must be notified within 20 days after the change.
Early Life Settlements Permitted
However, a life settlement contract is permissible within 2 years after the issuance of the policy if:
- The policy has already been in effect for 2 years because the policy was issued after the owner’s exercise of a conversion right in a policy which had already been in effect for at least 2 years; or
- The owner or insured obviously needs the money because:
- The owner or Insured is terminally or chronically ill; or
- The owner retires; or
- The owner becomes physically or mentally disabled and a physician determines that the disability prevents the owner from maintaining full-time employment; or
- The owner is decreed by court to be insolvent or bankrupt.
- The owner no longer needs the policy because:
- The owner’s spouse dies; or
- The owner gets divorced.
If any of the above provisions apply, the policy owner must sign the following statement:
“I hereby affirm that there was no plan or arrangement in place or under discussion, or any promises made, regarding the settlement of this life insurance policy at the time the policy was purchased.”
Life Settlement Advertising Restrictions
Life insurance advertisements for life settlements:
- must be filed with the Department prior to use;
- cannot imply that life settlement payments are “liberal” or “generous”;
- cannot create the impression that a Life Settlement Provider or Broker is approved or accredited by state or federal government.
Testimonials used in life insurance advertisements must:
- be accurate and genuine, represent the current opinion of the author; and
- disclose if the testimonial is a “paid endorsement.”
STOLI / IOLI Prohibition
Stranger-Originated Life Insurance (STOLI) refers to an illegal arrangement to initiate a life insurance policy for the benefit of a third party investor who, at the time of policy origination, has no insurable interest in the Insured. It is illegal to scheme to avoid the insurable interest requirement.
STOLI is also known as Investor-Originated Life Insurance (IOLI).
It is illegal to use any advertising that:
- encourages the purchase of life insurance for the purpose of transferring ownership to third party investors who lack an insurable interest in the life of the Insured; or
- states that the insurance is “free” for any period of time.