Life Insurance Basics-A. Insurable Interest B. Personal Uses of Life Insurance C.Life Settlement Act

Insurable Interest

To purchase insurance, the policyowner must fact the possibility of losing money or something of value in the event of loss.

Life Insurance

Insurable interest must exist between the policyowner and the insurer at the time of application.
-once a life insurance policy has been issued, the insurer must pay the policy benefit, whether or not an insurable interest exist or not.

Valid insurable interest

1. Policyowner's own life
2. The life of a family member(a spouse or a close blood relative); or
3. The life of a business partner, key employee, or someone who has a financial obligation to the policyowner (such as debtor to a creditor).

Personal uses of life insurance

1. Security
2. Survivor Protection
3.Estate Creation
4. Cash Accumulation
5. Liquidity
6. Estate Conservation

Security

Life insurance can guarantee future financial certainty for the surviving family of the insured.

Survivor Protection

Life insurance can provide the funds necessary of the insured to be able to maintain lifestyle in the event of the insured's death.

Estate Creation

life insurance creates an immediate estate.

Cash Accumulation

Life insurance maybe used to accumulate specific amounts of monies for specific needs with guarantees that the money will be available when needed.

Liquidity

Cash values can be borrowed against at any time.

Estate Conservation

Life insurance proceeds may be used to pay inheritance taxes and federal estate taxes so that it is not necessary for the beneficiary to sell off the assets.

Life Settlement Act

any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation, usual cash.

Reasons people sell their policies

1. senior who needs the cash due to life threatening illness and a short life expentency
2. the owner may elect to sell the policy to a life settlement provider for an amount greater than what they would receive if they surrender the policy for cash value

Business of life settlement

refers to any activity relating to the solicitation and sale of a life settlement contract to a third party who has no insurable interest in the insured.

Owner (Life Settlement Act)

refers to the owner of the life insurance policy who seeks to enter into a life settlement contract. Does not include an insurance provider, a qualified institutional buyer, a financing entity, a special purpose entity, or a related provider trust.

Insured

is the person covered under the policy that is considered for sale in a life settlement contract.

Qualified Institutional Buyer

is one that owns and invests at least $100 million in securities and is allowed by the SEC to trade in unregistered securities. A life settlement provider may sell, or in some other manner approved by the Department of Insurance, transfer ownership of a s

Life Expectancy

a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors.

Life Settlement Contract

establishes the terms under which the life settlement provider will pay compensation to the policyowner, in return for the assignment, transfer, sale or release of any portion of any portion of the any of the following:
-The death benefit
-Policy ownershi

Contracts not constitute a life settlement contract

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Life settlement Broker

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Not considered as a life settlement broker

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Life Settlement Provider

is a person (other than the owner) who enters into a life settlement contract with the owner.

STOLI-Stranger-Originated Life Insurance

is a type of insurance that is initiated on behalf of a 3rd party that has no insurable interest in the life of the insurer, for the primary purpose of affecting a life settlement contract. Illegal in most states.

Disclosure date

Life settlement brokers and providers must provide disclosures no later than the date of application to the owner for a life settlement contract. (see notes for the disclosure list)

Life Settlement Broker Authority and Licensing

-must obtain licensed (from Commission of Insurance)
-applicant's competency, trustworthiness, experience, training and education is examined by the Commission of Insurance.

Life Insurance Producer

-In MA, a producer is required to be licensed to transact a life line of authority for at least 1 year to be qualified to operate as a life settlement broker.
-must notify the commissioner within 30 days from the first day of operating as a life settlemen

Life settlement broker license

is not required to negotiate on behalf of the owner as long as no compensation is received directly or indirectly from the life settlement provider or purchaser.