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The Vermont Statutes Online



Title

08

:
Banking and Insurance






Chapter

103

:
LIFE INSURANCE POLICIES AND ANNUITY CONTRACTS






Subchapter

005B
:
LIFE SETTLEMENTS










 

§

3843. General rules

(a)(1) A life

settlement provider entering into a life settlement contract shall first

obtain:

(A) if the

policy owner is the insured, a written statement from a licensed attending

physician that the policy owner is of sound mind and under no constraint or

undue influence to enter into a life settlement contract; and

(B) if the

medical records of the insured are intended or required to be released in

connection with a proposed life settlement transaction, a document in which the

insured consents to the release of his or her medical records to a licensed

life settlement provider, life settlement broker, the insurance company that

issued the life insurance policy covering the life of the insured, and any

other person to whom the medical records will be released.

(2) Within 20

days after a policy owner executes documents necessary to transfer any rights

under an insurance policy or within 20 days of entering any agreement, option,

promise, or any other form of understanding, expressed or implied, to subject

the policy to a life settlement contract, the life settlement provider shall

give written notice to the insurer that issued that insurance policy that the

policy has or will become a policy subject to a life settlement contract. The

notice shall be accompanied by the documents required by subdivision (3) of

this subsection.

(3) The life

settlement provider shall deliver a copy of the medical release required under

subdivision (1)(B) of this subsection, a copy of the policy owner's application

for the life settlement contract, the notice required under subdivision (2) of

this subsection, and a request for verification of coverage to the insurer that

issued the life policy that is the subject of the life settlement transaction.

A form for verification of coverage approved by the commissioner shall be used.

(4) The insurer

shall respond to a request for verification of coverage submitted on an

approved form by a life settlement provider or life settlement broker within 30

calendar days of the date the request is received and shall indicate whether,

based on the medical evidence and documents provided, the insurer intends to

pursue an investigation at this time regarding the validity of the insurance

contract or possible insurance or life settlement fraud. The insurer shall

accept a request for verification of coverage made on a form approved by the

commissioner. The insurer shall accept an original or facsimile or electronic

copy of such request and any accompanying authorization signed by the policy

owner. Failure by the insurer to meet its obligations under this subsection

shall be a violation of sections 3844 and 3848 of this title.

(5) Prior to or

at the time of execution of the life settlement contract, the life settlement

provider shall obtain a witnessed document in which the policy owner consents

to the life settlement contract, represents that the policy owner has a full

and complete understanding of the life settlement contract and of the benefits

of the life insurance policy, acknowledges that he or she is entering into the

life settlement contract freely and voluntarily, has received the disclosures

required in section 3841 of this title and, for persons with a terminal or

chronic illness or condition, acknowledges that the insured has a terminal or

chronic illness and that the terminal or chronic illness or condition was

diagnosed after the life insurance policy was issued.

(6) If a life

settlement broker performs any of these activities required of the life settlement

provider, the provider is deemed to have fulfilled such requirement.

(b) All medical

information solicited or obtained by any licensee shall be subject to the

applicable provisions of state law relating to confidentiality of medical

information and to the department's Regulation No. IH-2001-I, Privacy of

Consumer Financial and Health Information.

(c) All life

settlement contracts entered into in this state shall provide the policy owner

with an absolute right to rescind the contract before 30 calendar days after

the date upon which the life settlement contract is executed by all parties.

Rescission by the policy owner may be conditioned upon the policy owner's both

giving notice and repaying to the life settlement provider within the

rescission period all proceeds of the settlement and any premiums, loans, and

loan interest paid by or on behalf of the life settlement provider in

connection with or as a consequence of the life settlement. If the insured dies

during the rescission period, the life settlement contract shall be deemed to

have been rescinded, subject to repayment to the life settlement provider or

purchaser of all life settlement proceeds and any premiums, loans, and loan

interest that have been paid by the life settlement provider or purchaser,

which shall be paid within 60 calendar days of the death of the insured. In the

event of any rescission, if the life settlement provider has paid commissions

or other compensation to a life settlement broker in connection with the

rescinded transaction, the life settlement broker shall refund all such

commissions and compensation to the life settlement provider within five

business days following receipt of written demand from the life settlement

provider, which demand shall be accompanied by either the policy owner's notice

of rescission if rescinded at the election of the policy owner or notice of the

death of the insured if rescinded by reason of the death of the insured within

the applicable rescission period.

(d) The life

settlement provider shall instruct the policy owner to send the executed

documents required to effect the change in ownership, assignment, or change in

beneficiary directly to an independent escrow agent. Within three business days

after the date the escrow agent receives the document (or from the date the

life settlement provider receives the documents, if the policy owner

erroneously provides the documents directly to the provider), the provider

shall pay or transfer the proceeds of the life settlement into an escrow or

trust account maintained in a state- or federally chartered financial

institution whose deposits are insured by the Federal Deposit Insurance

Corporation. Upon payment of the settlement proceeds into the escrow account,

the escrow agent shall deliver the original change in ownership, assignment, or

change in beneficiary forms to the life settlement provider or related provider

trust or other designated representative of the life settlement provider. Upon

the escrow agent's receipt of the acknowledgment of the properly completed

transfer of ownership, assignment, or designation of beneficiary from the

insurance company, the escrow agent shall pay the settlement proceeds to the

policy owner.

(e) Failure to

tender consideration to the policy owner for the life settlement contract

within the time set forth in the disclosure pursuant to subdivision 3841(a)(7)

of this title renders the life settlement contract voidable by the policy owner

for lack of consideration until the time consideration is tendered to and

accepted by the policy owner. Funds shall be deemed sent by a life settlement

provider to a policy owner as of the date that the escrow agent either releases

funds for wire transfer to the policy owner or places a check for delivery to

the policy owner via the United States Postal Service or another nationally

recognized delivery service.

(f) Contacts

with the insured for the purpose of determining the health status of the

insured by the life settlement provider or life settlement broker after the

life settlement has occurred shall only be made by the life settlement provider

or broker licensed in this state or its authorized representatives and shall be

limited to once every three months for insureds with a life expectancy of more

than six months and to no more than once every two months for insureds with a

life expectancy of six months or less. The provider or broker shall explain the

procedure for these contacts at the time the life settlement contract is

entered into. The limitations set forth in this subsection shall not apply to

any contacts with an insured for reasons other than determining the insured's

health status. Life settlement providers and life settlement brokers shall be

responsible for the actions of their authorized representatives.

(g)(1) In order

to assure that terminally ill policy owners receive a reasonable return for

entering into a life settlement contract, the following shall be minimum

payouts; provided that upon request of the policy owner the commissioner may

waive the requirements of this subdivision:

Terminally Ill Policy Owner's Minimum

Percentage of Ex- Remaining Life Expectancy pected Death Benefit (Net At Time

of Settlement of Loans and Any Cash Surrender Value) to be Received by the

Terminally Ill Policy Owner Less than 6 months 85% At least 6, but less than 12

months 80% At least 12, but less than 18 months 75% At least 18, but less than

24 months 70% At least 24, but less than 36 months 60%

(2) The expected

death benefit is the death benefit provided under the terms of the policy

subject to the life settlement contract, assuming the death of the insured were

to occur on the date the life settlement contract is signed.

(3) The payout

shall be increased by 100 percent of any net cash surrender value of the

insurance at the time the life settlement contract is issued.

(4) Payouts may

be reduced by the minimum premium, including premiums payable for additional

benefits retained at the option of the terminally ill policy owner, if any,

required to keep the contract in force for the duration of the terminally ill

policy owner's remaining life expectancy. Other than this allowable reduction

in payout, there shall be no other retention for expenses or broker's fees. At

the time of settlement, the life settlement provider shall place in trust a sum

equal to the amount the payout was reduced for future premiums. Sums placed in

trust under this section shall only be reduced by the life settlement provider

upon payment of policy premiums as they come due. If the terminally ill policy

owner dies with a sum held in trust under this section, the sum remaining in

trust shall become the property of the life settlement provider.

(5) If the life

settlement provider becomes insolvent or is the subject of a bankruptcy or

other insolvency proceeding during the life of the terminally ill policy owner

whose policy had riders retained, the life settlement provider shall notify the

terminally ill policy owner and other insureds of the insolvency or initiation

of insolvency proceedings. Persons with an interest in the continuation of

riders retained may pay any premiums required to keep riders retained in force.

(6) In computing

the minimum percentage of expected death benefit (net of loans and cash

surrender value) the death benefit value of any accidental death benefit rider

shall not be included. There shall be no minimum percentage payment required

for the transfer of an accidental death benefit rider to the life settlement

company.

(7) Life

expectancy shall be determined by a physician selected by the terminally ill policy

owner, on the basis of medical records. The physician selected will send life

expectancy information to the life settlement provider. If the life settlement

provider disagrees with the life expectancy estimate of the physician selected

by the terminally ill policy owner, the terminally ill policy owner will select

a second physician to make an estimate of life expectancy, based on medical

records. The second physician's decision shall be final. (Added 2009, No. 53, §

1, eff. Jan. 1, 2010.)