On March 23, 2009, the New York Insurance Department issued a press release announcing introduction of a bill (the “Bill”) to regulate life settlements. Currently, New York insurance law only regulates transactions involving the sale of life insurance policies by insureds who have life-threatening illnesses or conditions (viatical settlements), but does not regulate the sale of policies by healthy insureds (life settlements). The Bill would establish licensing requirements for life settlement providers and brokers, as well as registration requirements for life settlement intermediaries. It proposes to establish privacy protections and other safeguards for insureds, including protection against unlawful release of information concerning the identity of an insureds, without the consent of the insured. The legislation would also require:
- The disclosure of significant life settlement contract provisions.
- The disclosure of affiliations or contractual arrangements among parties involved in a transaction.
- A complete and accurate description of all offers and counter-offers relating to the sale of the life insurance policy.
- A reconciliation for the policyholder showing the difference between the gross offer for the purchase of the life insurance policy and the net amount to be paid to the owner.
- Advising the policyholder that selling a life insurance policy could result in tax consequences and could limit the insured individual’s ability to buy life insurance in the future.
Significantly, the Bill would prohibit life settlement providers and brokers from engaging in stranger-owned life insurance transactions ("STOLI"), which are transactions involving the purchase of life insurance for the benefit of a third party, who, at the time of policy issuance, does not have an insurable interest in the life of the insured. See our previous posting here for a further explanation of STOLI.