NATIONAL CONFERENCE OF INSURANCE …

1 NATIONAL CONFERENCE OF INSURANCE LEGISLATORSLIFE SETTLEMENTS model ACTR eadopted by the NCOIL Executive Committee on March 9, 2014 Adopted by the NCOIL Executive Committee on November 16, 2007 Amended bythe NCOIL life INSURANCE & Financial Planning Committee on November 15, 2007 Amended by the Executive Committee on July 16, 2004 Adopted by the Executive Committee on November 17, of ContentsPage NumbersSection Title(2)Section (2-8)Section Requirements(8-11)Section Suspension, Revocation or Refusal to Renew(11)Section Requirements(11-12)Section Requirements and Privacy(12-13)Section (13-16)Section (16)Section to Owners(16-19)Section to Insurer(19-20) Rules(20-22)Section to Promulgate Regulations;Conflict of Laws(22-23)Section Practices(23-24)Section Prevention and Control(24-27)Section ; Civil Remedies; Cease and Desist(27)Section (27-28)Section Practices(28)Section Date(28) [DRAFTING NOTE: It is an essential public policy objective to protect consumers against stranger-originated life INSURANCE (STOLI).]

2 STOLI is a practice or plan to initiate a life INSURANCE policy for thebenefit of a third party investor who, at the time of policy origination, has no insurable interest in theinsured. STOLI practices include but are not limited to cases in which life INSURANCE is purchased withresources or guaranteesfrom or through a person, or entity, who, at the time of policy inception, couldnot lawfully initiate the policy themselves, and where, at the time of inception, there is an arrangement oragreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy and/orthe policy benefits to a third party. Trusts, that are created to give the appearance of insurable interest,and are used to initiate policies for investors, violate insurable interest laws and the prohibition againstwagering on life .

3 STOLI arrangements do not include those practices setforth in Section 2L(2) of that are created to give the appearance of insurable interest and are used to manufacture policiesfor investors are illegal STOLI schemes. As the United States Supreme Court held, a person withinsurable interest cannot lend that insurable interest as a cloak to what is in its inception a wager. Grigsby , 222 149 (1911).2 Therefore, states should consider adopting an amendment to their insurable interest laws, if necessary, toprovide additional protection against trust-initiated STOLI and other schemes involving a cloak, asfollows: In accordance with Grigsby v. Russell, 222 149, it shall be a violation of insurable interest for anyperson or entity without insurable interest to provide or arrange for the funding ultimately used to paypremiums, or the majority of premiums, on a life INSURANCE policy, and, at policy inception have anarrangement for such person or entity to have an ownership interest in the majority of the death benefit ofthat life INSURANCE policy.

4 Section TitleSections 1 through 18 of this Act may be cited as the life Settlements Act. Section Advertisement means any written, electronic or printed communication or any communicationby means of recorded telephone messages or transmitted on radio, television, the Internet orsimilar communications media, including film strips, motion pictures and videos, published,disseminated, circulated or placed before the public, directly or indirectly, for the purpose ofcreating an interest in or inducing aPerson to purchase or sell, assign, devise, bequest or transferthe death benefit or ownership of a life INSURANCE policy or an interest in a life INSURANCE policypursuant to a life settlement Broker means a Person who, on behalf of an Owner and for a fee, commission or other valuableconsideration.

5 Offers or attempts to negotiate life settlement Contracts between an Owner andProviders. A Broker represents only the Owner and owes a fiduciary duty to the Owner to actaccording to the Owner s instructions, and in the best interest of the Owner, notwithstanding themanner in which the Broker is compensated. A Broker does not include an attorney, certifiedpublic accountant or financial planner retained in the type of practice customarily performed intheir professional capacity to represent the Owner whose compensation is not paid directly orindirectlyby the Provider or any other person, except the Business of life settlements means an activity involved in, but not limited to, offering to enterinto, soliciting, negotiating, procuring, effectuating, monitoring, or tracking,of life Chronically ill unable to perform at least two (2) activities of daily living ( , eating,toileting, transferring, bathing, dressing or continence).

6 Substantial supervision to protect the individual from threats to health andsafety due to severe cognitive impairment; a level of disability similar to that described in Paragraph (1) as determinedby the United States Secretary of Health and Human Commissioner means theCommissioneror Superintendentof the Department of Financing Entity means an underwriter, placement agent, lender, purchaser of securities,purchaser of a policy or certificate from a Provider, credit enhancer, or any entity that has a directownership in a policy or certificate that is the subject of a life settlement Contract, principal activity related to the transaction is providing funds to effect theLife settlement Contract or purchase of one or more policies.

7 Has an agreement in writing with one or more Providers to finance theacquisition of life settlement Contracts. Financing Entity does not include a non-accredited investor or Financing Transaction means a transaction in which a licensed Provider obtains financing froma Financing Entity including, without limitation, any secured or unsecured financing, anysecuritization transaction, or any securities offering which either is registered or exempt fromregistration under federal and state securities Fraudulent life settlement Act omissions committed by any person who, knowinglyandwith intent to defraud,for the purpose of depriving another of property or for pecuniary gain, commits, orpermits its employees or its agents to engage in acts including, but not limited to.

8 (a)Presenting, causing to be presented or preparing with knowledge and belief that itwill be presented to or by a Provider, Premium Finance lender, Broker, insurer, INSURANCE producer or any other person, false material information, or concealingmaterial information, as part of, in support of, or concerning a fact material toone or more of the following:(i)An application for the issuance of a life settlement Contract orinsurance policy;(ii)The underwriting of a life settlement Contract or INSURANCE policy;(iii)A claim for payment or benefit pursuant to a life settlement Contract orinsurance policy;(iv)Premiums paid on an INSURANCE policy;(v)Paymentsand changes in ownership or beneficiary made in accordancewith the terms of a life settlement Contractorinsurance policy;(vi)The reinstatement or conversion of an INSURANCE policy;(vii)In the solicitation, offer to enter into, oreffectuation of a life SettlementContract, or INSURANCE policy;(viii)The issuance ofwritten evidence of life settlement Contracts orinsurance;(ix)Any application for or the existence of or any payments related to a loansecured directly or indirectly by any interest in a life INSURANCE policy.

9 Or(x)Enter into any practice or plan which involves (b)Failing to disclose to the insurer where the request for such disclosure has beenasked for by the insurer that the prospective insured has undergone a lifeexpectancy evaluation by any person or entity other than the insurer or itsauthorized representatives in connection with the issuance of the policy.(c)Employing any device, scheme, or artifice to defraudin the business of lifesettlements.(d)In the solicitation, application or issuance of a life INSURANCE policy, employingany device, scheme or artifice in violation of state insurable interest the furtherance of a fraud or to prevent the detection of a fraud any person commits orpermits its employees or its agents to;(a)Remove, conceal, alter, destroy or sequester from theCommissioner the assets orrecords of a licensee or other person engaged in the business of life settlements;(b)Misrepresent or conceal the financial condition of a licensee,financing entity,insurer or other person.

10 (c)Transact thebusiness of life settlements in violation of laws requiring a license,certificate of authority or other legal authority for the transaction of thebusinessof life settlements;(d)File with theCommissioner or the chief INSURANCE regulatory official ofanotherjurisdiction a document containing false information or otherwise concealinginformation about a material fact from theCommissioner;(e)Engage inembezzlement, theft, misappropriation or conversion of monies, funds,premiums, credits or other property of a Provider, insurer, insured, owner, INSURANCE , policy owner or any other person engaged in the business of lifesettlements or INSURANCE ;(f)Knowingly and with intent to defraud, enter into, broker, or otherwise deal in aLife settlement Contract, the subject of which is a life INSURANCE policy that wasobtained by presenting false information concerning any fact material to thepolicy or by concealing, for the purpose of misleading another, informationconcerning any fact material to the policy, where the owner or the owner s agentintended to defraud the policy s issuer;(g)Attempt to commit, assist, aidor abet in the commission of, or conspiracy tocommit the acts or omissions specified in this subsection.