(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: ociquestions@wisconsin.gov. 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)
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 2.19Ins 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)5.5. Contracts offered by Servicemembers’ Group Life Insurance or Veterans’ Group Life Insurance, as authorized by 38 U.S.C. section 1965 et seq. 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.
