NAIC Model Act   The NAIC Model Act creates barriers for consumers seeking to sell their policies and harsh burdens for life settlement companies seeking to make the market. Furthermore, the NAIC Model Act fails to address the source of the problem.     Stranger Originated Life Insurance is a problem created during the inception (origination) of the policy and nothing in this Model is done to address this issue directly. Many of the NAIC Model Act provisions are dubious in their true intent as bear no weight in the fight against STOLI.

NAIC Model Act	Summary of Language/Provision	Why We Oppose
Viatical vocabulary Throughout the Model Act	Use of “viatical” vocabulary throughout the Model Act. Terms such as “viatical,” and “viator.”	The use of this archaic vocabulary only serves to confuse and mislead the public about the life settlement market.
"Viatical settlement investment agent," "purchase agreement," and other investor protection provisions Throughout the Model Act	Use of terms such as “Viatical settlement investment agent,” “purchaser agreement,” and other investor protection provisions	This is an effort to regulate securities activity through Insurance Code which has been rejected by Securities Regulators.  This confuses Securities Law with Insurance law.
A 5 year moratorium on life settlements for new policies NAIC Model Act §11(A)	Requires that consumers prove that the policy be purchased “exclusively with unencumbered assets” in order to sell the policy within five years.	The use of “unencumbered assets” is broad and undefined language. The use of "exclusively" in this provision cuts out many reasonable consumer options. This feature will require policy holders that wish to sell their policies guilty of a STOLI transaction unless they can prove that the policy falls into one of the allowed exceptions.
	No consumer, selling a policy within five years, may have been “evaluated for settlement” or have had their policy so evaluated.	This attacks the long standing (100 years) 2-year contest period in an attempt to address STOLI.  “Evaluation” is not defined. In a simple comparison, this would be the same as punishing consumers that appraised their houses before purchase.
	The consumer submits "independent evidence" to the buyer of one of six special conditions.	Consumers must prove to be suffering to be able to sell their own property; just six conditions are acceptable.
60 day rescission period NAIC Model Act §10C	A rescission provision for 60 after settlements are completed	When consumers finance a house, purchase a car, or even their life insurance policy, the right to rescind the contract does not exceed 7 days. A 60 day rescission period discourages investment in settlements as investors know they do not truly own the policy for that period. Result:  lower prices for consumers selling policies. Furthermore, this provision does nothing to prevent STOLI.
250K bond	Under this provision, any life settlement provider or broker operating in the life settlement market is required to pay for a 250 thousand dollar bond covering fraud in order to operate.	If this provision is enacted nationwide, providers and brokers operating in all states would have to carry bonds in excess of 13 million dollars.  Bonds covering criminal acts cannot be purchased. This provision burdens the life settlement industry, helps eliminate small companies and does nothing to stop STOLI transactions.
"Disclosure to Insurer" NAIC Model Act §9	A requirement that settlement licensees disclose to insurers any “plan” to “originate, renew or finance” any policy prior to or within 5  years of policy issue.	This provision is poorly worded and unenforceable.  There is no consensus on what this language means.
"consumer disclosure to insurer" NAIC Model Act §10(A)( 2)	This requires that provider disclose confidential information about all policy sellers to insurers.	This provision does not consider how long the consumer has owned the policy but rather, it assumes that the act of settling is suspicious in itself. Insurers should not have access to the insured’s private information beyond the existing two year contest period.
Criminal Penalties NAIC Model Act §15(H)	Criminal penalties are applied for a violation of any provision of this Model Act.	These provisions threaten legitimate life settlements with extraordinary penalties for potentially minor infractions.
"Viatical settlement contract" definition NAIC Model Act §2(N)(2)	The definition of “Viatical settlement contract” includes “life settlements” and policy transfers regardless of when they occur or what form of payment is involved.	This provision fails to identify or focus on the use of trusts as vehicles to avoid regulation.

 

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