LISA | Glossary of terms

Glossary of Terms

The definitions here are generic. Specific states have differing definitions in law. Click here to information about your state.

Life Settlement - A financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.

Viatical Settlement - (from the Latin "Viaticum" (vi-at-i-kum), historically, an allowance for traveling expenses or provisions for a journey.) n. Historically, the proceeds from the sale of a life insurance policy to a third party by a terminally ill individual with a life expectancy of 24 months or less.

Life Settlement Broker - This means a person who, on behalf of an Owner and for a fee, commission or other valuable consideration, offers or attempts to negotiate Sales Contracts, between an Owner and one or more Providers, the subject of which is a Life Settlement. A broker represents only the Owners and owes a fiduciary duty to the Owner to act according to the Owners instructions, notwithstanding the manner in which the Broker is compensated. A Broker does not include an attorney, certified public accountant or financial planner retained in the type of practice customarily performed in their professional capacity to represent the Owner whose compensation is not paid directly or indirectly by the Provider.

Life Settlement Provider - This means a Person, other than an Owner, who enters into or effectuates a Sales Contract with an Owner, the subject of which is a Life Settlement. A Provider does not include:

a. any bank, savings bank, savings and loan association, credit union or other licensed institution which takes an assignment of a life insurance policy or certificate issued pursuant to a group life insurance policy as collateral for a loan;

b. any natural Person who enters into no more than one agreement in a calendar year for the transfer of a life insurance policy, for compensation or anything of value less than the expected death benefit payable under the policy;

c. a Purchaser;

d. or any authorized or eligible insurer that provides stop loss coverage to a Provider;

e. a Financial Entity;

f. a Special Purpose Entity;

g. a Related Provider Trust;

h. a Broker.

Viaticals - A general term referring to transactions in the Life Settlement marketplace.

Viaticate - (vi-at-i-kate) (Historically, to furnish with the provisions necessary for a journey.) v. To sell a life insurance policy to a third party when the insured is terminally ill.

Viator - (vi'-a-tor) n. A terminally ill person who sells his or her life insurance policy to a third party and receives a lump sum cash payment.

(From NAIC definitions)

Accelerated Death Benefit - A feature of a life insurance policy that typically pays some or all of the policy's death benefit before the insured dies. It may provide a way to get cash from a policy without selling it to a third party.

Net Death Benefit - The amount of the life insurance policy or certificate to be viaticated less any outstanding debts or liens.

Life Expectancy - The number of months the individual insured under the life insurance policy to be viaticated can be expected to live as determined by the Life Settlement provider considering medical records and appropriate experiential data.

(from NCOIL definitions)

Terminally Ill - Having an illness or sickness that can reasonably be expected to result in death in twenty-four (24) months or less.

Chronically Ill - This means (1) being unable to perform at least two activities of daily living (i.e., eating, toileting, transferring, bathing, dressing or continence), or (2) requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment, or (3) having a level of disability similar to that described in (1) as determined by the Secretary of Health and Human Services.

Owner - This term means the Owner of a life insurance policy or a certificate holder under a group policy. The term "Owner" does not include any Provider or other licensee.

Insured - This term means the person covered under the policy being considered for sale.

Purchase Agreement - A Contract or agreement entered into by a Provider with a Purchaser, to which the Owner is not a party, to purchase a policy or an interest in a life insurance policy, or acquire a beneficial interest, or a certificate issued pursuant to a group life insurance policy.

Sales Contract - This is a written agreement entered into between a Provider and an Owner, the subject of which is a Life Settlement. Sales Contract also includes a written agreement for a loan or other lending transaction, secured primarily by an individual or a group life insurance policy, other than a loan by a life insurance company pursuant to the terms of the Sales Contract, or a loan secured by the cash value of a policy.

Financing Entity - An underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a Provider, credit enhancer, or any entity that has a direct ownership in a policy or certificate that is the subject of a Sales Contract, but: whose principal activity related to the transaction is providing funds to effect the Life settlement or purchase of one or more policies: and who has an agreement in writing with one or more Providers to finance the acquisitions of Sales Contracts.

Financing Entity does not include a non-accredited investor or Purchaser.

Financing Transaction - A transaction in which a licensed Provider obtains financing from a Financing Entity including, without limitation, any secured or unsecured financing, any securitization transaction, or any securities offering which either is registered or exempt from registration under federal and state securities law.

Special Purpose Entity - A corporation, limited liability company, or other similar entity formed solely to provide either directly or indirectly access to institutional capital markets to a Financing Entity or Provider.

Related Provider Trust - A titling trust or other trust established by a licensed Provider or a Financing Entity for the sole purpose of holding ownership or beneficial interest in purchased policies in connection with a Financing Transaction. In order to qualify as a Provider Trust, the trust must have a written agreement with the licensed Provider under which the licensed Provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files relating to life settlement transactions available to the Department of Insurance as if those records and files were maintained directly by the licensed Provider.

Secondary Markets – These markets do not include a “Provider”, a “Purchaser”, a “Financing Entity”, or a “Special Purpose Entity”, but rather does include any Person who is a qualified institutional buyer or accredited investor (as defined, respectively, in Rule 144A or Regulation D, Rule 501, promulgated under the Securities Act of 1933, as amended.)

Accredited Investor – As used in Regulation D, this shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

Any private business development company as defined in section 202(a)(22) of the Investment Advisors Act of 1940;

Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;

Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) and

Any entity in which all of the equity owners are accredited investors.

Qualified Institutional Buyer – As used in rule 144A, this shall mean any of the following entities, acting for its own account or the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity:

Any insurance company as defined in section 2(a)(13) of the Act;

Any investment company registered under the Investment Company Act or any business development company as defined in section 2(a)(48) of that Act;

Any Small Business Investment company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958;

Any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees;

Any employee benefit plan within the meaning of title I of the Employee Retirement Income Security Act of 1974;

Any trust fund whose trustee is a bank or trust company and whose participants are exclusively plans of the types identified in paragraph (a)(I)(i)(D) or (E) of this section, except trust funds that include as participants individual retirement accounts or H.R. 10 plans;

Any business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;

Any organization described in section 501(c) (3) of the Internal Revenue Code, corporation (other than a bank as defined in section 3(a)(2) of the Act or a savings and loan association or other institution referenced in section 3(a)(5)(A) of the Act or a foreign bank or savings and loan association or equivalent institution), partnership, or Massachusetts or similar business trust; and

Any investment adviser registered under the Investment Advisers Act.

Any dealer registered pursuant to section 15 of the Exchange Act, acting for its own account of the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $10 million of securities of issuers that are not affiliated with the dealer, Provided, That securities constituting the whole or a part of an unsold allotment to or subscription by a dealer as a participant in a public offering shall not be deemed to be owned by such dealer;

Any dealer registered pursuant to section 15 of the Exchange Act acting in a riskless principal transaction on behalf of a qualified institutional buyer;

Any investment company registered under the Investment Company Act, acting for its own account or for the accounts of other qualified institutional buyers, that is part of a family of investment companies which own in the aggregate at least $100 million in securities of issuers, other than issuers that are affiliated with the investment company or are part of such family of investment companies. Family of investment companies means any two or more investment companies registered under the Investment Company Act, except for a unit investment trust whose assets consist solely of shares of one or more registered investment companies, that have the same investment adviser (or, in the case of unit investment trusts, the same depositor), Provided That, for purposes of this section:

Each series of a series company (as defined in rule 18f-2 under the Investment Company Act) shall be deemed to be a separate investment company; and

Investment companies shall be deemed to have the same adviser (or depositor) if their advisers (or depositors) are majority-owned subsidiaries of the same parent, or if one investment company’s adviser (or depositor) is a majority-owned subsidiary of the other investment company’s adviser (or depositor);

Any entity, all of the equity owners of which are qualified institutional buyers, acting for its own account or the accounts of other qualified institutional buyers; and

Any bank as defined in section 3(a)(2) of the Act, any savings and loan association or other institution as referenced in section 3(a)(5)(A) of the Act, or any foreign bank or savings and loan association or equivalent institution, acting for its own account or the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with it and that has an audited net worth of a least $25 million as demonstrated in its latest annual financial statements, as of a date not more than 16 months preceding the date of the sale under the Rule in the case of a U.S. bank or savings and loan association, and not more than 18 months preceding such date of sale for a foreign bank or savings and loan association or equivalent institution.

Viatical or Life Settlement Financing Entity - means any person who purchases or subscribes to purchase a Life Settlement Investment.

Viatical or Life Settlement Investment - means the contractual right to receive any portion of the death benefit or ownership of a life insurance policy or certificate, for consideration that is less than the expected death benefit of the life insurance policy or certificate. Life Settlement Investment does not include: any transaction between a seller and a Life Settlement provider; any transfer of ownership and/or beneficial interest in a life insurance policy from a Life Settlement provider to another Life Settlement provider or to any legal entity formed solely for the purpose of holding ownership and/or beneficial interest in a life insurance policy or policies; the bona fide assignment of a life insurance policy to a bank, savings bank, savings and loan association, credit union, or other licensed lending institution as collateral for a loan; or the exercise of accelerated benefits pursuant to the terms of a life insurance policy issued in accordance with the insurance laws of your state.

The definition of Life Settlement Investment is intended to include transactions in life insurance policies regardless of the age or health of the insured. [Some states may have adopted insurance laws to limit the scope of coverage to insureds who are terminally or chronically ill.]

Viatical or Life Settlement Provider - means, in the case of a fractional interest in Life Settlement Investments, any person who creates, for the purpose of sale, the fractional interest, and in the case of a Life Settlement investment that is not fractionalized, any person engaged in the business of effecting transactions in Life Settlement Investments to which the seller is not a party. Life Settlement Issuer does not include a broker-dealer, an agent of any person who sells a Life Settlement Investment to no more than one natural person in a calendar year.

Escrow Agent - means a state or federally regulated financial institution organized under the laws of the United States or any state, whose responsibilities include accepting investor funds, transferring funds in order to purchase policies, paying insurance premiums and receiving death benefits for all policies where Life Settlement Investors are not the beneficiaries.

Life insurance producer - means any person licensed in this state as a resident or nonresident insurance producer who has received qualification or authority for life insurance coverage or a life line of coverage pursuant to applicable state law.