Section 2.18. Life settlement contracts.

 

(1)   Purpose. The purpose of this regulation is to interpret and implement s. 632.69 , Stats.

(2)   Definitions. In addition to the definitions contained in s. 632.69 (1) , Stats., in this section:

(a) "Commissioner" means the commissioner of insurance.

(b) "Firm" means a corporation, partnership or other legal entity.

(c) "Office" means the office of the commissioner of insurance.

(d) "Term life insurance" means life insurance which provides coverage at a fixed rate of payment for a limited period of time and which provides no guaranteed nonforfeiture or endowment benefits.

(3)   Licensing.

(a) Application. An individual or firm applying for an initial or renewal license as a broker or provider shall submit an application to the office in the form prescribed by the office. With the application, the individual or firm shall submit all of the following:

1. If the applicant is a broker, with the initial application, a professional liability insurance policy in the amount of $1 million total annual aggregate for all claims during the policy period. Proof that the required professional liability insurance policy continues in force shall accompany each renewal application.

2. If the applicant is a provider, applicants shall provide satisfactory evidence of financial responsibility in compliance with s. 632.69 (2) (g) 4. a. , Stats.

3. If the applicant is a provider, audited financial statements of the applicant for the most recently completed fiscal year. The financial statements shall be available for public inspection.

4. Electronic confirmation of completion of the training requirements under s. 632.69 (3) , Stats., and sub. (4) if electronic confirmation is available. If electronic confirmation is not available the applicant shall provide evidence satisfactory to the commissioner of completion of the training requirements.

5. Any documentation required in answer to questions on the application.

6. If the applicant is an individual, his or her social security number or, if the applicant does not have a social security number, a statement made or subscribed under oath or affirmation that the applicant does not have a social security number, and a statement that he or she intends to act as a broker or provider in good faith and in compliance with all applicable laws of this state and rules and orders of the commissioner.

7. If the applicant is a firm applying for a broker's license, the applicant must identify a designated responsible Wisconsin-licensed individual representative on the application.

8. If the applicant is a firm, its federal identification number, the state and year of its incorporation, or year of its formation and a statement that it intends to act as a broker or provider in good faith and in compliance with all applicable laws of this state, and with rules and orders of the commissioner and the courts of this state with respect to all matters pertaining to activities as a licensee.

9. If the applicant is an individual who is not a resident of this state or a firm that is not organized under the laws of this state, a statement that the applicant agrees to be subject to the jurisdiction of the commissioner and the courts of this state with respect to all matters pertaining to activities as a licensee and to accept service of process as provided under ss. 601.72 and 601.73 , Stats. A firm that is organized under the laws of another state shall provide a certificate of good standing from the state of domicile.

10. Fingerprint identification may be required for individual resident broker applicants and the Wisconsin-licensed individual representative of a broker firm, in a format specified by the commissioner, and an electronic confirmation of criminal history from the Wisconsin department of justice, crime information bureau, and the federal bureau of investigation, to be completed not more than 180 days prior to making application.

11. Any other information requested by the office.

12. The fee specified under s. 601.31 (1) (mm) or (mp) , Stats., as appropriate for a provider, or s. 601.31 (1) (mr) or (ms) , Stats., as appropriate for a broker, which fee shall be nonrefundable.

(b) Renewal application deadline. Applications for license renewal shall be submitted pursuant to par. (a) on or before July 1 of each year.

(c) Competence and trustworthiness. The following criteria may be used in assessing trustworthiness and competence:

1. `Criminal record.' The conviction for crimes which are substantially related to the circumstances of holding a broker or provider license.

2. `Accuracy of information.' Any material misrepresentation in the information submitted on the application form.

3. `Regulatory action.' Any regulatory action taken with regard to any occupational license held, including insurance licenses, real estate licenses, and security licenses.

4. `Other criteria.' Other criteria which the commissioner considers relevant in assessing trustworthiness or competence, including any of the following:

a. Providing incorrect, misleading, incomplete, or materially untrue information in the license application.

b. Violating any insurance laws, or violating any rule, subpoena, or order of the insurance commissioner or of another state's insurance commissioner.

c. Obtaining or attempting to obtain a license through misrepresentation or fraud.

d. Improperly withholding, misappropriating, or converting any monies or properties received in the course of engaging in the business of life settlements.

e. Misrepresenting the terms of an actual or proposed life settlement contract.

f. Having been convicted of any felony or misdemeanor of which criminal fraud is an element or having plead other than not guilty with respect to any felony or misdemeanor of which criminal fraud or moral turpitude is an element, regardless whether a judgment of conviction has been entered by the court.

g. Having admitted or been found to have committed any unfair trade practice or fraud.

h. Using fraudulent, coercive, or dishonest practices, or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business in this state or elsewhere.

i. Having a life settlement license or its equivalent, denied, suspended, or revoked in any other state, province, district, or territory.

j. Forging another's name to an application or to any document related to a life settlement transaction.

k. Failing to comply with an administrative or court order imposing a child support obligation.

L. Failing to pay state income tax or comply with any administrative or court order directing payment of state income tax.

(4)   Training.

(a) An individual licensed as a broker shall comply with the training requirements set forth in s. 632.69 (3) , Stats.

(b) A firm licensed as a broker shall certify to the commissioner on its application for initial and renewal licensing that the firm's designated responsible Wisconsin-licensed individual representative has complied with the training requirements set forth in s. 632.69 (3) , Stats.

(c) Each compliance period for recurring training required under s. 632.69 (3) , Stats., shall commence on July first immediately following the preceding compliance period and shall end 24 months later on June 30.

(d) Recurring training required under s. 632.69 (3) (e) , Stats., shall be completed and reported at a rate of not less than 2 hours each 12 months of each compliance period.

(5)   Notification of formal administrative actions, criminal proceedings and lawsuits. A licensed broker or provider shall notify the commissioner in writing of the following within 30 days:

(a) Except for action taken by the Wisconsin office of the commissioner of insurance, any formal administrative action against the broker or provider taken by any state's regulatory agency, commission or board or other regulatory agency which licenses the person for any occupational activity. The notification shall include a description of the basis for the administrative action and any action taken as a result of the proceeding, a copy of the notice of hearing and other documents describing the problem, a copy of the order, consent to order, stipulation, final resolution, and other relevant documents.

(b) Any initial pretrial hearing date related to any criminal prosecution of the broker or provider taken in any jurisdiction, other than a misdemeanor charge related to the use of a motor vehicle or the violation of a fish and game regulation. The notification shall include a copy of the initial criminal complaint filed, the order resulting from the hearing and any other relevant legal documents.

(c) Any felony conviction or misdemeanor conviction of the licensee in any jurisdiction, other than a misdemeanor conviction related to the use of a motor vehicle or the violation of a fish and game regulation. The notification shall include a copy of the initial criminal complaint or criminal charging document filed, the judgment of conviction, the sentencing document, the broker's explanation of what happened to cause criminal proceedings, the licensee's reasons why no action should be taken regarding the life settlement and any other relevant legal documents.

(d) Any lawsuit filed against the licensee in which there are allegations of misrepresentation, fraud, theft or embezzlement involving the licensee. The notification shall include a copy of the initial suit documents, the licensee's explanation of what happened to cause the civil proceedings, why no action should be taken regarding the life settlement broker's license, and any other relevant legal documents.

(6)   Notification to office. A licensee shall notify the office in writing of any of the following within 30 days after the date of the occurrence:

(a) The cessation of business activities as a broker or provider. A notification under this subsection shall include the name and address of the custodian of the licensee's business records and the location of the records.

(b) Any change in the broker's or provider's business mailing address or the location of its business records.

(c) New or revised information about officers, partners, directors, members, designated employees, or stockholders, except stockholders owning fewer than ten percent of the shares of a provider or broker whose shares are publicly traded.

(7)   Filing and approval of forms. In fulfilling the requirements of s. 632.69 (5) , Stats., a licensee shall comply with the provisions of s. 631.20 (1) (a) , Stats.

(8)   Notices.

(a) Purpose. This subsection interprets and implements s. 632.69 , Stats., by specifying the content of certain notices required to be given to policyholders, owners and purchasers.

(b) Notice format. An insurer shall use the forms in Appendices I, II, and III to comply with this subsection. Each notice shall be in no less than 10-point type, and shall include the issuer's address, toll free telephone number, if available, and telephone number in no less than 12-point type.

(c) Notice by insurer to policyholder.

1. This par. (c) does not apply to term life insurance.

2. For each life insurance policy issued, life insurers shall provide to individual life insurance policyholders at the time the policy is issued the notice prescribed in Appendix I to this section.

3. In addition, life insurers shall provide a statement informing the policyholder that if the policyholder is considering making changes in the status of a policy, the policyholder should consult with a licensed insurance agent or financial advisor to find an alternative best suited to the policyholder's needs. The statement shall advise the policyholder that additional information is available from the office of the commissioner of insurance at its website address: http://oci.wi.gov or by telephone at 1-800-236-8517. The statement shall be sent to the policyholder annually, and may be included in notices or mailings otherwise provided to policyholders.

4. The commissioner shall make information concerning policy alternatives available to the public.

5. Compliance by insurers with the requirements of par. (c) shall commence three months after September 1, 2012.

(d) Disclosure to owner. In accordance with s. 632.69 (8) (a) 2. , Stats., at the time disclosures required by s. 632.69 (8) (a) 1. , Stats., are provided by the broker or provider with each application for a life settlement, the broker or provider shall provide to the owner a brochure entitled "Wisconsin Guide to Understanding Life Settlements" as prescribed in Appendix II to this section.

(e) Disclosure to purchaser. In accordance with s. 632.69 (9) (a) 2. , Stats., at the time disclosures required by s. 632.69 (9) (a) 1. , Stats., are provided by the provider to the purchaser, and prior to the date that a life settlement purchase agreement is signed by all parties, a provider shall provide to the purchaser a brochure entitled "Wisconsin Guide to Purchase of a Life Settlement" as prescribed in Appendix III to this section.

CR 10-051 : cr. Register August 2012 No. 680 , eff. 9-1-12. Ins 2.18 Appendix I Important information about your life insurance policy Keep this information with your insurance papers Life insurance is a critical part of a broader financial plan. If you are considering making changes in the status of your policy you should consult with a licensed insurance or financial advisor in order to find an alternative best suited to your needs. Available alternatives include but are not limited to:   • Accelerated Death Benefit: Your policy may provide an early or accelerated cash payment if you have a terminal or chronic illness.   • Cash Surrender: Your policy may have a cash surrender value the life insurer will pay you if you surrender your policy.   • Gift: You may be able to give your policy to another person, who would then assume responsibility for paying premiums.   • Life Settlement: You may be able to sell your life insurance policy to a third party for an amount greater than the cash surrender value or accelerated death benefit but less than the expected death benefit under your policy. The third party becomes the policyholder and receives the benefit upon the death of the insured. Upon sale to the third party you would pay no further premium. Wisconsin law requires brokers and providers who arrange life settlements to be licensed.   • Maintain Your Policy: You may be able to maintain your life insurance policy in force by paying the premiums directly or using your current policy value to pay the premiums.   • Policy Changes: You may be able to reduce or eliminate future premium payments by obtaining a paid-up policy, by reducing coverage, or through other options available from your life insurer.   • Policy Loan: You may be able to obtain a loan from your life insurance company using the cash value of your policy as collateral. Loan proceeds may be used to pay premiums or for other purposes.   • Third-Party Loan: You may be able to obtain a loan from another party to pay your premiums using the cash value or a portion of the death benefit as collateral. The listed alternatives may or may not be available depending on your circumstances and the terms of your life insurance policy. If you have a specific concern about your life insurance policy, contact your insurance company or agent: (Insurer name) (Customer service) (Address) (Toll free telephone number, if available) (Telephone number) You may also contact your financial advisor, or you may contact the Office of the Commissioner of Insurance at 1-800-236-8517 or 608-266-0103; Email: [e-mail] . Ins 2.18 Appendix II WISCONSIN GUIDE TO UNDERSTANDING LIFE SETTLEMENTS Keep this information with your insurance papers Thinking about selling your life insurance policy? Life insurance is a critical part of a broader financial plan. If you are considering a sale of your life insurance you should consult with a licensed insurance or financial advisor, attorney or accountant to find an option best suited to your needs. What is a life settlement? A life settlement is the sale of a life insurance policy to a third party for a cash amount that is greater than the cash surrender value or accelerated death benefit but less than the expected full death benefit under the policy. The third party becomes the new owner or beneficiary of the life insurance policy, is responsible for paying all future premiums, and collects the entire death benefit when the insured dies. Questions to ask before you sell your life insurance policy:   • Do I still need life insurance protection?   • Have I discussed all my choices with a professional advisor?   • If I sell my policy how much cash will I get?   • If I sell my policy will I be able to get additional life insurance in the future?   • Is my life insurance provided by an employer or other group policy? If so do I have the right to sell it?   • If I sell my policy, who will be the legal owner? Will the policy be resold?   • Who will have specific personal or medical information about me? How often can medical information be requested about me? Will I be required to permit others to contact my medical providers or family members concerning my medical information?   • Is the broker or provider I plan to work with licensed to do life settlement business in Wisconsin?   • What are the costs and fees? If you sell your life insurance it is important to know:   • You may have to pay income taxes on some or all of the settlement money you receive. Consult a tax professional.   • Creditors may be able to make claims against the settlement money you receive.   • A cash settlement may affect your eligibility for certain government assistance programs such as Medicaid or food stamps. Consult with the appropriate government agency, such as the county aging and disability resource service.   • Your policy could be resold and future owners may be able to track your health. How does a life settlement work?   • You may contact a life settlement company directly or choose a broker to help you shop for the highest cash settlement. A listing of Wisconsin licensed life settlement brokers and providers is available at the OCI web site. A licensed broker represents only the policy owner and owes a fiduciary duty to the owner to act according to the owner's instructions and in the best interest of the owner.   • You will complete an application form and sign a release allowing the potential buyer to use your medical records to evaluate your life expectancy.   • You select the best offer from those submitted to you.   • Once you accept a settlement offer an escrow account will be set up to hold your policy and the purchaser's money until the documents that change ownership of the policy and the beneficiary have been received and processed by the insurance company.   • Within three business days after the life settlement company gets written proof that the changes in policy ownership and beneficiary have been processed by the insurance company, the settlement proceeds will be sent to you.   • You can change your mind about the life settlement within 30 days from the date of the life settlement contract or 15 days after you are paid, whichever is earlier. If you cancel the settlement contract, you must return the cash settlement plus any premiums paid by the buyer, and repay any loan and loan interest paid on account of the life settlement. If you die within the period, the life settlement contract is cancelled and the named beneficiaries will receive the death benefit, but any cash settlement funds received plus any premiums paid by the buyer, and any loan and loan interest paid on account of the life settlement must be returned to the buyer within 60 days of the date of death.   • Your contract may require you to allow future owners of your policy to regularly contact you to check your health status. Consumer tips.   • Comparison shop. Get quotes from several settlement companies and be sure you have the best offer.   • You do not have to accept any life settlement offer. You should decide what is in your best interests.   • Check all application forms for accuracy, especially your personal information and medical history.   • Be cautious of any offer to loan you money to buy life insurance. Ask what strings are tied to the loan, and what will happen if the loan is not repaid.   • Stranger-originated life insurance is prohibited. Contact the Office of the Commissioner of Insurance if you are offered any money or a gift to purchase life insurance, or if you are offered "free" life insurance for a period of time, or if you are asked to purchase life insurance for the purpose of selling it to investors. Questions or complaints? Contact your insurance company or agent: (Insurer Name) (Customer Service) (Address) (Toll free telephone number, if available) (Telephone number) You may also contact the Wisconsin Office of the Commissioner of Insurance at 1-800-236-8517 or 608-266-0103; Email:[e-mail] . Ins 2.18 Appendix III WISCONSIN GUIDE TO PURCHASE OF A LIFE SETTLEMENT Keep this important information Thinking about buying a life settlement as an investment? Life settlements allow life insurance policyholders to sell their policies for an immediate cash benefit that is less than the face value of the policy. In return, the buyer of the life settlement becomes the new owner or beneficiary of the life insurance policy, is responsible for payment of future premiums, and collects the death benefit when the insured dies. Typically, interests in the settled life insurance policies take the form of securities and are sold to investors. Multiple investors may invest in a single policy, or the investors may own an interest in an underlying pool of settled policies. When the insured dies the investor who has purchased an interest in the settled policy is entitled to collect a portion of the death benefit in accordance with the terms of the purchase contract. From an investor's perspective a life settlement is an investment in the timely death of the insured person. Before you put your money into this type of investment it is critical that you understand the risks involved, know how your investment will be used, and know what the likely return will be. You should consult with a professional financial advisor, review Wisconsin regulations relating to the purchase of a life settlement, and deal with a licensed life settlement provider and registered securities broker dealer. Questions to ask before you purchase a life settlement:   • Is the principal and return on my investment guaranteed?   • How is the return on my investment determined?   • When will the principal and return on my investment be paid?   • What fees or other costs am I required to pay?   • Will I ever be required to pay the premiums on the insurance policy?   • Will I be an owner of the policy or only a beneficiary?   • What happens if the settlement company becomes insolvent or goes out of business?   • What happens if the life insurance policy is later determined to be null and void?   • What is the experience and qualification of the person who determines the life expectancy of the insured? It is important to know:   • A life settlement is not a liquid investment. It cannot be "cashed in" if you change your mind. There is no return on your investment until the insured dies and the death benefit is paid by the insurance company.   • There is no guaranteed annual rate of return. The rate of return depends on when the insured dies, which cannot be precisely predicted. You should find out the life expectancy of the insured and how the determination was made.   • Premiums must be paid on the life insurance policy that is the subject of a life settlement until the insured dies. Find out who is responsible for paying the premiums and whether you may ever be responsible for the payment.   • If the life insurance policy is a group policy there is a risk that the employer or insurer may terminate the policy, and there may be no right to convert the original coverage to an individual policy, or there may be limitations in any conversion right. If the policy is converted there may be additional premiums.   • If the life insurance policy is term insurance the policy is issued for a certain number of years. If the insured outlives the term of the policy there will be no death benefit.   • Insurance companies may contest the validity of a life insurance policy for a period of two years from the date of its issue for a variety of reasons, including suicide or false information, which could result in denial of a death benefit claim.   • If the purchaser of a life settlement is the beneficiary only and not also the owner of the life insurance policy, there is a risk that the beneficiary could be changed or that the premium may not be paid.   • You should consult with a tax advisor to determine whether there may be a tax impact, particularly if money from retirement funds is used to purchase a life settlement. Questions or complaints? Contact your insurance company or agent: (Insurer name) (Customer service) (Address) (Toll free telephone number, if available) (Telephone number) You may also contact the Wisconsin Office of the Commissioner of Insurance at 1-800-236-8517 or 608-266-0103; Email: [e-mail] .