On May 29, 2009, Nevada Governor Jim Gibbons signed into law Senate Bill 426, an act that affects the state’s insurance industry primarily by making changes as to how the state handles viatical settlements (the “Act”). The Act, which is consistent with the National Association of Insurance Commissioners (NAIC) Model Act, was passed by the state Assembly by a 37-5 vote.
While the Act will operate to transfer the funding of Nevada’s Division of Insurance from the state’s General Fund to the newly created Fund for Insurance Administration and Enforcement (“Fund”), the changes to Nevada’s approach to viatical settlements are more noteworthy.
With respect to viatical settlements, the Act attempts to impose stricter requirements regarding insurable interests and STOLI transactions. For example, such requirements now mandate that a trust may procure a life insurance policy only if the beneficiary has an insurable interest.
The Act will also amend Nevada’s securities laws and include “viatical settlement investment” within the definition of a “security,” except for viatical settlements with a viatical settlement provider or entities formed to own life insurance policies.
The Act will enhance advertising and marketing guidelines for viatical and life settlement products as well as establish a five-year waiting period for an individual to viaticate a life insurance policy, subject to certain exceptions. Specifically, among other provisions, the Act provides additional protection for consumers by requiring that viatical settlement agents shall not directly communicate with insureds whose insurance policies are the object of viatical settlements for which the agent solicits or arranges for the funding of the purchase. The Act also serves to improve the accountability and transparency of insurers by requiring additional notices and disclosures to be sent to consumers including NAIC or approved forms of brochures that describe the viatical settlement investment process and statements regarding escrow deposits, premium waivers and costs related to the policy that have been waived.
The provisions of the Act relating to viatical settlements will become effective in October 2009.