3 Alaska Admin. Code § 31.380

Current through September 25, 2024

Section 3 AAC 31.380 - Disclosure requirements

(a) Before an application for a viatical settlement contract is signed, a viatical settlement provider, viatical settlement broker, or viatical settlement representative shall provide disclosure statements in a conspicuous manner to a viator in a separate document. The document containing the disclosure statements must be signed by the viatical settlement provider, viatical settlement broker, or viatical settlement representative, and by the viator. In the document, the following information must be disclosed:

(1) possible alternatives to a viatical settlement contract, including policy loans or accelerated death benefits that may be offered under the viator's life insurance policy;

(2) that some or all of the proceeds of the viatical settlement contract may be taxable under federal income tax or state franchise or income tax laws, along with a recommendation that the viator seek assistance from a professional tax advisor;

(3) that proceeds from a viatical settlement contract could be subject to the claims of creditors;

(4) that receipt of the proceeds from a viatical settlement contract may adversely affect the viator's eligibility for Medicaid or other government benefits or entitlements, along with a recommendation that the viator obtain advice from the appropriate government agency;

(5) the viator's right to rescind a viatical settlement contract within 15 days after the date of receipt of the proceeds from a viatical settlement contract by the viator pending return of the proceeds;

(6) that the proceeds from a viatical settlement contract will be sent to the viator within three working days after the viatical settlement provider receives the insurer's or group administrator's acknowledgment that

(A) ownership of the life insurance policy or interest in the group certificate has been transferred to the viatical settlement provider; and

(B) the beneficiary under the viatical settlement contract has been designated;

(7) that entering into a viatical settlement contract may cause other rights or benefits available to the viator, including conversion rights and waiver of premium benefits existing under the life insurance policy or interest in the group certificate, to be forfeited, along with a recommendation that the viator seek assistance from a financial adviser;

(8) the name, business address, and telephone number of the independent trustee or escrow agent that is to be used in the transaction, along with a statement that the viator may inspect or receive copies of relevant agreements or documents provided by the trustee or escrow agent;

(9) that providing false or misleading information in order to obtain an insurance policy is insurance fraud under AS 21.36.360;

(10) the name, address, and telephone number of the viatical settlement provider;

(11) that all medical, financial, and personal information solicited or obtained by a viatical settlement provider, viatical settlement broker, or viatical settlement representative about a viator and insured, including the viator's or insured's identity and the identity of family members, a spouse, or a spousal equivalent of the viator or insured, is confidential unless disclosure is

(A) necessary to effectuate a viatical settlement contract between the viator and a viatical settlement provider and the viator and insured have provided prior written consent to release the information; or

(B) provided in response to an investigation or examination by the director;

(12) that by entering into a viatical settlement contract, information regarding the viator's or insured's identity and medical condition will be available to each subsequent owner of the life insurance policy;

(13) that subject to (12) of this subsection, medical, financial, and personal information solicited or obtained by a viatical settlement provider, viatical settlement broker, or viatical settlement representative about a viator or insured, including the viator's or insured's identity or the identity of a viator's or insured's family members, spouse, or a spousal equivalent may be provided to viatical settlement financing entities;

(14) that the insured may be contacted no more than once every three months if the insured has a life expectancy of more than one year and no more than once per month if the insured has a life expectancy of one year or less by the viatical settlement provider, the viatical settlement broker, or the viatical settlement representative to determine the insured's health status;

(15) the information in Appendix A of this section printed in at least 12-point typeface.

(b) Before a viatical settlement contract is signed, a viatical settlement provider, viatical settlement broker, or viatical settlement representative shall provide disclosure statements in a conspicuous manner to a viator in a separate document. The document containing the disclosure statements must be signed by the viatical settlement provider, viatical settlement broker, or viatical settlement representative, and by the viator. In the document, the following information must be included:

(1) the affiliation, if any, between the viatical settlement provider and the issuer of an insurance policy subject to the viatical settlement contract;

(2) the name, address, and telephone number of the viatical settlement provider;

(3) the amount and method of calculating the viatical settlement broker's compensation;

(4) if the life insurance policy subject to the viatical settlement contract has been issued as a joint policy or involves family riders or any coverage of a life other than the insured, information about the possible loss of coverage on the other lives under the policy, along with a recommendation that the viator consult with an insurance producer or the insurance company issuing the life insurance policy for advice regarding the impact of entering into a viatical settlement contract on the benefits of the life insurance policy;

(5) the dollar amount of the current net death benefit payable to the viatical settlement provider under the life insurance policy or interest in the group certificate;

(6) the availability of any additional guaranteed insurance benefits, the dollar amount of any accidental death and dismemberment benefits under the policy, and the viatical settlement provider's interest in those benefits;

(7) the name, business address, and telephone number of the independent trustee or escrow agent that is to be used in the transaction, along with a statement that the viator may inspect or receive copies of relevant agreements or documents provided by the trustee or escrow agent;

(8) the procedure for how contacts with the viator or the insured will be handled.

(c) If the viatical settlement provider transfers ownership or changes the beneficiary of the life insurance policy, the viatical settlement provider shall provide the viator and insured the name, business address, and phone number of the new beneficiary or owner within 20 days after the transfer of ownership or change in beneficiary.

APPENDIX A Selling Your Life Insurance Policy

Today it's possible for you to sell your life insurance policy to someone else (a viatical settlement provider) for an immediate cash payment. This financial arrangement, known as a viatical settlement, is best suited for people who are living with an immediate life-threatening illness and facing tough financial choices.

It may not always be in your best interest to sell your life insurance policy. Before you take action, you should be sure you understand

* what future benefits you may lose; and

* what other options may be available

Selling your life insurance policy is a complex financial arrangement. This guide will help you make an informed decision.

We recommend that you

1. evaluate your needs;

2. check all your options;

3. understand how the process works;

4. know your rights; and

5. check with the Alaska Division of Insurance.

Step 1. Evaluate your needs Before you sell your policy and give up valuable insurance protection, think about whether your need for life insurance has changed since you bought the policy. If it hasn't, selling your policy may not be the right choice. If you sell your policy now, your beneficiaries will not be paid a benefit at your death.

If you sell your policy now, remember premiums go up a lot as you grow older. You may not want to pay the higher cost to replace your coverage later.

Step 2. Check all of your options You may be able to get the cash you need now without selling your policy.

Policy Cash Values

Contact your current life insurance agent or company to see if you have any cash value in your policy. Ask if you can

(1) borrow from the cash value and still keep the insurance in force;

(2) cancel the policy for its current cash value; or

(3) use the cash value as collateral to get a loan from a financial institution.

Your insurance company must tell you about your options if you ask.

Accelerated Death Benefits

Find out if your policy has an "accelerated death benefit." It may be your best option.

Many life insurance policies do have an accelerated death benefit. With that benefit, policyholders who are terminally ill, affected with certain diseases, or permanently confined in a nursing home can access 50 percent or more of a policy's death benefit while still living. An accelerated death benefit could pay you a large part of your policy's death benefit and you could keep your policy.

A very important feature of the accelerated benefit is that when the policyholder dies, the beneficiaries get the remaining death benefit. This means that eventually 100 percent of the policy benefits will be paid out either to the insured or the beneficiary.

Other Considerations

Think about what it will mean if you do sell your policy. Check out the tax implications. Not all proceeds from a viatical settlement are tax-free.

Find out if creditors could claim any of the money you would get from a viatical settlement.

Find out if you will lose any public assistance benefits such as medicaid or other government benefits if you accept a cash settlement for your life insurance policy.

Comparison Shop

To learn the market value of your policy, it's a good idea to contact three to five viatical settlement providers. Or you could use a viatical settlement broker who would contact several viatical settlement providers for you. Your financial advisor can help you decide whether to work with a viatical settlement provider or through a viatical settlement broker.

Summary

Everyone's financial situation is different. A viatical settlement may or may not be the best approach for you. Check it out for yourself. We recommend that you ask an advisor who is qualified to review your finances to help you review your options.

Step 3. How the process works If you decide to sell your life insurance policy to a viatical settlement provider, you will enter into a viatical settlement agreement with the provider. You, the seller, agree to accept a cash payment for your policy. The amount will be less than the face amount the policy would pay upon your death. (For example, you might agree to accept a $75,000 cash payment for a $100,000 policy.)

The viatical settlement provider buying your policy

* becomes the new owner of your policy;

* names the beneficiary;

* collects the full death benefit when you die;

* begins paying premiums on the policy; and

* may sell your policy again.

There are four basic phases required to complete a viatical transaction.

Phase 1 - Qualifying to sell your policy (underwriting)

The viatical settlement provider will need information about you before making an offer. Usually, the viatical settlement provider will take some preliminary information from you over the phone and send you this paperwork to sign:

* a medical release form so the viatical settlement provider can get and review your medical records;

* an authorization form to contact your insurance company to confirm benefit, premium, and ownership of your policy.

To avoid delays, it's important that you give complete and accurate information about your medical history.

If you apply with more than one viatical settlement provider, each will contact your doctor for medical records and your insurance company for policy information.

Phase 2 - Calculating the offer

The viatical settlement provider uses the information it gets in the underwriting phase to make an offer. To develop an offer, a viatical settlement provider takes into account various factors including

* estimated life expectancy and medical condition of the insured; generally, the shorter the life expectancy of the insured, the more the viatical settlement provider will offer for the policy;

* the amount of life insurance coverage;

* loans or advances, if any, previously taken against the policy;

* amount of premiums necessary to keep the life insurance policy in force;

* the rating of the issuing insurance company;

* prevailing interest rates; and

* payment restrictions.

Phase 3 - Closing the agreement

* If you accept an offer, a closing package is forwarded to you, the seller, for approval and signature. Closing documents typically include an offer letter, a viatical settlement contract, and the forms the insurance company needs to transfer ownership of the policy to the viatical settlement provider.

* The closing documents are then returned to the viatical settlement provider for its signature.

* The viatical settlement provider will put the cash payment owed to you in escrow, if required, and send the signed insurance change forms to the insurance company to record the change.

Phase 4 - Receiving the payment

Once the insurance company notifies the viatical settlement provider that the changes on the life insurance policy have been recorded, the payment is released to you, the seller, usually the next business day.

Step 4. Know your rights State laws

Alaska insurance laws provide important consumer protections including the following:

* a viatical settlement broker or viatical settlement provider arranging viatical settlements must be licensed with the Alaska Division of Insurance;

* with few exceptions, the viatical settlement provider buying your policy must keep your identity and medical history confidential unless you give written consent to tell others;

* to protect your proceeds, the viatical settlement provider buying your policy must put your money into an escrow account with an independent party during the transfer process;

* you have the right to change your mind about the settlement within 15 days AFTER you receive the money, provided you return all the money;

* the new owners of your policy are limited in how often they may contact you about your health status.

Federal tax laws

Two groups of people might receive benefits from a viatical settlement without owing federal income tax:

* persons who have been diagnosed with a terminal illness and with a life expectancy of 24 months or less;

* certain chronically ill individuals. Before entering into a viatical settlement, consult your own financial advisor or tax attorney about the federal tax consequences.

Avoiding Consumer Fraud

* If you're in good health and someone asks you to sell your life insurance policy, proceed with caution. Refer to the section on selling your life insurance policy.

* If you've been contacted by someone who wants you to buy a policy and then sell it immediately, you should contact the Alaska Division of Insurance. You may be a target for fraud.

* If you're asked to buy a life insurance policy for the sole purpose of selling it, you may be participating in fraud. Contact the Alaska Division of Insurance to report the request and to obtain information.

* If you're asked to invest in a viatical settlement, we recommend that you contact the Alaska Division of Insurance to learn more about the issues and risks that might be involved in such an investment.

Step 5. Check with the Alaska Division of Insurance State Licensing For a complete list of authorized viatical settlement providers, viatical settlement brokers, and viatical settlement representatives, call the Alaska Division of Insurance.

Seller Checklist

Before you sell your policy be sure you know the answers to these questions.

Evaluating Your Needs

* Do you still need life insurance?

* Do you have dependents who might rely on your life insurance benefits should anything happen to you?

* If you don't need life insurance protection now, what are the chances you'll need it in the future?

Current Policy Benefits

* Can you borrow from the cash value?

* Can you cancel the policy for its current cash value?

* Can you use the cash value as collateral to get a loan from a financial institution?

* Do you have art accelerated death benefit feature?

Taxes and Other Financial Considerations

* Is the money you get from selling the policy taxable?

* Will the money you get from selling the policy affect your eligibility for government benefits?

* Do you need the advice of a tax or estate-planning specialist before you decide to sell your policy?

* If you sell your policy, can any of your creditors claim the money?

Understanding the Process

* If you sell your policy, who will be the legal owner?

* Is the viatical settlement provider buying your policy licensed?

* If you sell your policy, how will the value you get be calculated?

What interest rate will be used?

* If you sell your policy but then change your mind, can you get your money back?

* Will investors have specific information about you, your family, or your health status?

* How are fees or commissions paid to the viatical settlement broker or viatical settlement provider?

Protections in Your State

Contact the Alaska Division of Insurance to find out about the laws governing viatical settlements.

3 AAC 31.380

Eff. 8/25/2002, Register 163

In 2010 the revisor of statutes, acting under AS 01.05.031, renumbered former AS 21.89.110 as AS 21.96.110. As of Register 196 (January 2011), the regulations attorney made a conforming technical revision under AS 44.62.125(b)(6), to the authority citation that follows 3 AAC 31.380, so that the citation to former AS 21.89.110 now refers to the renumbered statute, AS 21.96.110.

Authority:AS 21.06.090

AS 21.36.360

AS 21.96.110