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:
ociquestions@wisconsin.gov.
Ins 2.19
Ins 2.19
Military sales practices. Ins 2.19(1)(a)(a) The purpose of this section is to set forth standards to protect active duty service members of the United States Armed Forces from dishonest and predatory insurance sales practices by declaring certain identified practices to be false, misleading, deceptive or unfair.
Ins 2.19(1)(b)
(b) This section does not create or imply a private cause of action for a violation of this section.
Ins 2.19(2)
(2) Scope. This section shall apply only to the solicitation or sale of any life insurance or annuity product by an insurer or insurance producer to an active duty service member of the United States Armed Forces.
Ins 2.19(4)(a)
(a) This section does not apply to solicitations or sales involving any of the following:
Ins 2.19(4)(a)2.
2. Group life insurance or group annuities where there is no in-person, face-to-face solicitation of individuals by an insurance producer or where the contract or certificate does not include a side fund.
Ins 2.19(4)(a)3.
3. An application to the existing insurer that issued the existing policy or contract when a contractual change or a conversion privilege is being exercised; or, when the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner; or, when a term conversion privilege is exercised among corporate affiliates.
Ins 2.19(4)(a)4.
4. Individual stand-alone health policies, including disability income policies.
Ins 2.19(4)(a)6.
6. Life insurance contracts offered through or by a non-profit military association, qualifying under section
501 (c) (23) of the Internal Revenue Code, and which are not underwritten by an insurer.
Ins 2.19(4)(a)7.b.
b. A plan described by sections
401(a),
401(k),
403(b),
408(k) or
408(p) of the Internal Revenue Code, as amended, if established or maintained by an employer.
Ins 2.19(4)(a)7.c.
c. A government or church plan defined in section
414 of the Internal Revenue Code, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under section
457 of the Internal Revenue Code.
Ins 2.19(4)(a)7.d.
d. A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.
Ins 2.19(4)(a)7.e.
e. Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process.
Ins 2.19(4)(b)
(b) Nothing in this section shall be construed to abrogate the ability of nonprofit organizations or other organizations to educate members of the United States Armed Forces in accordance with Department of Defense DoD Instruction 1344.07 — Personal Commercial Solicitation on DoD Installations or a successor directive.
Ins 2.19(4)(c)
(c) For purposes of this section,
general advertisements, direct mail and internet marketing does not constitute solicitation. Telephone marketing shall not constitute solicitation provided the caller explicitly and conspicuously discloses that the product concerned is life insurance and makes no statements that avoid a clear and unequivocal statement that life insurance is the subject matter of the solicitation. Nothing in this paragraph shall be construed to exempt an insurer or insurance producer from this section in any in-person, face-to-face meeting established as a result of the solicitation exemptions identified in this paragraph.
Ins 2.19(5)(a)
(a) “Active duty" means full-time duty in the active military service of the United States and includes members of the reserve component (National Guard and Reserve) while serving under published orders for active duty or full-time training. The term does not include members of the reserve component who are performing active duty or active duty for training under military calls or orders specifying periods of less than 31 calendar days.
Ins 2.19(5)(b)
(b) “Department of Defense personnel" means all active duty service members and all civilian employees, including nonappropriated fund employees and special government employees, of the U.S. Department of Defense.
Ins 2.19(5)(c)
(c) “Door to door" means a solicitation or sales method whereby an insurance producer proceeds randomly or selectively from household to household without prior specific appointment.
Ins 2.19(5)(d)
(d) “General advertisement" means an advertisement having as its sole purpose the promotion of the reader's or viewer's interest in the concept of insurance, or the promotion of the insurer or the insurance producer.
Ins 2.19(5)(e)
(e) “Insurance producer" means a person required to be licensed under the laws of this state to sell, solicit or negotiate life insurance, including annuities.
Ins 2.19(5)(f)
(f) “Insurer" means an insurance company required to be licensed under the laws of this state to provide life insurance products, including annuities.
Ins 2.19(5)(g)
(g) “Known" or “knowingly" means, depending on its use in this section, the insurance producer or insurer had actual awareness, or in the exercise of ordinary care should have known, at the time of the act or practice complained of, that the person solicited is any of the following:
Ins 2.19(5)(h)
(h) “Life insurance" means insurance coverage on human lives including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income and, unless otherwise specifically excluded, includes individually issued annuities.
Ins 2.19(5)(i)
(i) “Military installation" means any federally owned, leased, or operated base, reservation, post, camp, building, or other facility to which service members are assigned for duty, including barracks, transient housing, and family quarters.
Ins 2.19(5)(j)
(j) “MyPay" means a Defense Finance and Accounting Service web-based system that enables service members to process certain discretionary pay transactions or provide updates to personal information data elements without using paper forms.
Ins 2.19(5)(k)
(k) “Service member" means any active duty officer, commissioned and warrant, or enlisted member of the United States Armed Forces.
Ins 2.19(5)(L)
(L) “Side fund" means a fund or reserve that is part of or otherwise attached to a life insurance policy, excluding individually issued annuities, by rider, endorsement or other mechanism which accumulates premium or deposits with interest or by other means. The term does not include any of the following:
Ins 2.19(5)(L)1.
1. Cumulated value or cash value or secondary guarantees provided by a universal life policy.
Ins 2.19(5)(L)2.
2. Cash values provided by a whole life policy which are subject to standard nonforfeiture law for life insurance.
Ins 2.19(5)(L)3.
3. A premium deposit fund which complies with all of the following:
Ins 2.19(5)(L)3.a.
a. Contains only premiums paid in advance which accumulate at interest.
Ins 2.19(5)(m)
(m) “Specific appointment" means a prearranged appointment agreed upon by both parties and definite as to place and time.
Ins 2.19(5)(n)
(n) “United States Armed Forces" means all components of the Army, Navy, Air Force, Marine Corps, and Coast Guard.
Ins 2.19(6)
(6) Practices declared false, misleading, deceptive or unfair on a military installation or using military personnel or programs. Ins 2.19(6)(a)
(a) No insurer or insurance producer may engage in any of the following acts or practices on a military installation with respect to the in-person, face-to-face solicitation of life insurance:
Ins 2.19(6)(a)1.
1. Knowingly soliciting the purchase of any life insurance product door to door or without first establishing a specific appointment for each meeting with the prospective purchaser.
Ins 2.19(6)(a)2.
2. Soliciting service members in a group or mass audience or in a captive audience where attendance is not voluntary.
Ins 2.19(6)(a)3.
3. Knowingly making appointments with or soliciting service members during their normally scheduled duty hours.
Ins 2.19(6)(a)4.
4. Making appointments with or soliciting service members in barracks, day rooms, unit areas, or transient personnel housing or in other areas where the installation commander has prohibited solicitation.
Ins 2.19(6)(a)5.
5. Soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander's designee.
Ins 2.19(6)(a)7.
7. Fail to present Department of Defense Form 2885,
Personal Commercial Solicitation Evaluation, to service members solicited or encouraging service members solicited not to complete or submit a Department of Defense Form 2885.
Ins 2.19(6)(a)8.
8. Knowingly accepting an application for life insurance or issuing a policy of life insurance on the life of an enlisted member of the United States Armed Forces without first obtaining for the insurer's files a completed copy of any required form which confirms that the applicant has received counseling or fulfilled any other similar requirement for the sale of life insurance established by regulations, directives or rules of the Department of Defense or any branch of the United States Armed Forces.
