Life settlements

Correct answer: The owner sells an existing policy to a third party for more than its cash surrender value but less than its death benefit

A life settlement is a sale of an in-force policy to a third-party buyer, the provider, for a lump sum that exceeds the cash surrender value but is less than the death benefit.

Correct answer: The life settlement provider pays the premiums and receives the death benefit

The provider becomes the new owner and beneficiary of the settled policy, so it keeps paying the premiums and collects the death benefit at the insured's death.

Correct answer: A higher offer for the three-year insured, because the provider pays premiums for less time and collects sooner

The provider's profit is the death benefit minus the purchase price and all future premiums. A shorter life expectancy means fewer premiums and an earlier payoff, so the provider can pay more.

Correct answer: Only the policy owner, to whom the broker owes a fiduciary duty

The life settlement broker represents only the owner and owes the owner a fiduciary duty, including acting on the owner's instructions and in the owner's best interest.

Correct answer: Representing or negotiating on behalf of the owner

An intermediary relays offers and counteroffers but may not represent, solicit, negotiate or act on behalf of an owner, provider or broker, and may not act as a provider or broker.

Correct answer: A registration issued by the superintendent

No person may act as a life settlement intermediary without a registration issued and in force under the life settlements act.

Correct answer: Until fifteen days after the owner receives the settlement proceeds

The owner may rescind from the time the contract is executed until fifteen days after receiving the life settlement proceeds, and the disclosure document must say so.

Correct answer: Within three business days after the provider receives the insurer's acknowledgement that ownership and beneficiary have been transferred

Proceeds must be sent within three business days after the provider receives the insurer's or group administrator's acknowledgement that ownership has been transferred and the beneficiary designated.

Correct answer: Once every three months

Health-status contacts are limited to once every three months for an insured with a life expectancy of more than one year.

Correct answer: Once a month

For an insured with a life expectancy of one year or less, health-status contacts may be made no more than once per month.

Correct answer: No one may make a medical exam after the policy is settled a condition of the settlement contract

No provider, broker, intermediary, owner or other person may, as a condition of entering into a life settlement contract, request or require the insured to submit to a medical exam at any time after the policy is settled.

Correct answer: In a lump sum, because installment payments are prohibited

No life settlement provider may enter into a contract in which proceeds are paid in installments.

Correct answer: The fee is prohibited, and the producer may not accept it

A provider may not pay a referral or finder's fee to the owner's physician, attorney, accountant, insurance producer or other adviser, other than a life settlement broker representing the owner, and no one may accept such a fee.

Correct answer: No, because an insurer may not prohibit an agent from disclosing the availability of a life settlement

No insurer shall prohibit an insurance agent from disclosing to a client the availability of a life settlement contract.

Correct answer: Only a person licensed as a life settlement broker

No one may provide compensation to a person acting as a life settlement broker, and no one may accept it, unless that person is a licensed life settlement broker.

Correct answer: The insured is terminally or chronically ill

Viatical settlement is the traditional name for a settlement where the insured is terminally or chronically ill, often with a short life expectancy.

Correct answer: Twenty-four months or less

A person is terminally ill if he or she has an illness or condition that can reasonably be expected to result in death in twenty-four months or less.

Correct answer: A policy purchased from the start with the intent of transferring it to investors with no insurable interest in the insured

STOLI is a scheme in which a policy is initiated for the benefit of investors who lack an insurable interest, with resale planned from the start. It is prohibited, unlike a legitimate life settlement.

Correct answer: As STOLI, because the policy is being originated for investors without an insurable interest

When a policy is applied for and funded by outsiders who plan to take ownership after it is issued, it is stranger-originated life insurance, which is prohibited.

Correct answer: Some or all of the proceeds may be taxable, and advice should be sought from a professional tax adviser

The disclosure must state that some or all of the proceeds may be taxable and that the owner should seek advice from a professional tax adviser.

Correct answer: That proceeds may affect eligibility for public assistance or other government benefits

The disclosure must warn that receiving proceeds may adversely affect eligibility for public assistance or other government benefits, and that advice should be obtained from the appropriate agencies.

Correct answer: The total amount offered by the provider for the policy, inclusive of commissions and fees

Gross offer or bid means the total amount or value offered by the provider to purchase the policy, inclusive of commissions and fees.

Correct answer: $270,000

The gross offer includes all commissions and fees, so the net to the owner is $300,000 minus $24,000 minus $6,000, or $270,000. The broker must give the owner a complete reconciliation of gross offer to net proceeds.

Correct answer: $110,000

A settlement price falls between the cash surrender value and the death benefit, so $110,000 is the only plausible figure.

Correct answer: The mother is the owner and the son is the insured

The owner is the person who owns the policy and enters into the settlement; the insured is the person covered under the policy. They can be different people.

Correct answer: An accredited investor whose principal role is providing funds to buy policies, under a written agreement with a provider

A financing entity is an accredited investor whose principal activity in the transaction is providing funds to effect the settlement or purchase policies, and who has a written agreement with a provider to do so.

Correct answer: It may be disclosed as necessary to effect the contract, with consent, and the insured may be asked to renew permission every two years

The insured's notice must say that medical, financial and personal information may be disclosed as necessary to effect the contract, that consent will be requested, that it may go to buyers or funders, and that permission may need renewing every two years.

Correct answer: Because a settlement may pay more than the cash surrender value

A life settlement is priced above the cash surrender value, so an owner who would otherwise lapse or surrender may receive more by selling.

Correct answer: A full, complete and accurate description of all offers, counter-offers, acceptances and rejections

The broker's disclosure must include a full, complete and accurate description of all offers, counter-offers, acceptances and rejections relating to the proposed contract.

Correct answer: The provider that authorized the representative

A life settlement provider, broker or intermediary is responsible for the actions of its authorized representative.

Correct answer: Providers, brokers, intermediaries and applicants for those licenses or registrations

The superintendent may examine or investigate any life settlement provider, broker or intermediary, and any applicant for licensure or registration.

Correct answer: Taking a policy loan from the insurer against the cash value

A policy loan is borrowed from the insurer and leaves ownership unchanged; it involves no sale to a third party, so it is not a life settlement.

Correct answer: No later than the date the life settlement contract is signed by all parties

The separate disclosure document must be signed by the owner and the provider no later than the date the life settlement contract is signed by all parties.

Correct answer: A policy that has at any time been acquired by a life settlement provider under a life settlement contract

A settled policy is one that at any time has been acquired by a life settlement provider pursuant to a life settlement contract.