TITLE 13 INSURANCE
CHAPTER 9 LIFE INSURANCE
PART 15 VIATICAL SETTLEMENTS
13.9.15.1 ISSUING AGENCY:
Public Regulation Commission, Insurance Division.
[13.9.15.1 NMAC – N, 7-1-00]
13.9.15.2 SCOPE:
This rule applies to all persons soliciting, negotiating, financing, or
transacting viatical settlements in New Mexico.
[13.9.15.2 NMAC – N, 7-1-00]
13.9.15.3 STATUTORY AUTHORITY:
NMSA 1978 Sections 59A-2-9 and 59A-20A-10.
[13.9.15.3 NMAC – N, 7-1-00]
13.9.15.4 DURATION:
Permanent.
[13.9.15.4 NMAC – N, 7-1-00]
13.9.15.5 EFFECTIVE DATE:
July 1, 2000, unless a later date is cited at the end of a section.
[13.9.15.5 NMAC – N, 7-1-00]
13.9.15.6 OBJECTIVE:
The purpose of this rule is to implement the Viatical Settlements Act,
NMSA 1978 Section 59A-20A-1 et seq.
[13.9.15.6 NMAC – N, 7-1-00]
13.9.15.7 DEFINITIONS:
In addition to the definitions in NMSA 1978 Section 59A-20A-2, as used
in this rule:
A. chronically ill means:
(1) being unable to perform at least two (2)
activities of daily living (i.e., eating, toileting, transferring, bathing,
dressing or continence);
(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 paragraph (1) of subsection A of 13.9.15.7 NMAC as determined
by the Secretary of Health and Human Services;
B. insured means the person covered under the
policy being considered for viatication;
C. life expectancy means the mean of the number of months
the individual insured under the life insurance policy to be viaticated can be
expected to live as determined by the viatical settlement provider considering
medical records and appropriate experiential data;
D. net death benefit means the amount of the life insurance
policy or certificate to be viaticated less any outstanding debts or liens;
E. patient identifying information means an insured’s name, address,
telephone number, facsimile number, electronic mail address, photograph or
likeness, employer, employment status, social security number, or any other
information that is likely to lead to the identification of the insured; and
F. terminally ill means having an illness or sickness that
can reasonably be expected to result in death in twenty-four (24) months or
less.
[13.9.15.7 NMAC – N, 7-1-00]
13.9.15.8 LICENSE REQUIREMENTS:
A. A
viatical settlement provider or broker transacting business in this state may
continue to do so pending issuance of the provider or broker’s license as long
as its application for a license is filed with the Superintendent by July 1,
2000.
B. The
Superintendent may ask for all information necessary to determine whether the
applicant for a license as a viatical settlement provider or broker complies
with the requirements of NMSA 1978 Section 59A-20A-3.
C. The
license issued to a viatical settlement provider or broker shall be a limited
license that allows the viatical settlement provider or broker to operate only
within the scope of its license.
D. A
viatical settlement provider or broker shall file with the Superintendent
within thirty (30) days a supplement to its application showing any changes to
the members, officers, representatives and designated employees authorized to
act under its license.
[13.9.15.8 NMAC - N, 7-1-00]
A. A
viatical settlement provider or broker may renew its license yearly by filing
an application for renewal no less than thirty (30) days before the anniversary
date of licensure. The Superintendent
shall refuse to renew a license if the licensee fails to:
(1) file a current copy of a letter of good
standing obtained from the filing officer of the applicant’s state of domicile;
(2) pay the renewal fee; and
(3) submit the reports required in NMSA 1978
Section 59A-20A-6.
B. If
a viatical settlement provider has, at the time of renewal, viatical
settlements for which the insured has not died, it shall do one of the
following:
(1) renew or maintain it’s current license
until the earlier of:
(a)
the date the viatical settlement provider properly assigns, sells, or
otherwise transfers the viatical settlements for which the insured has not
died; or
(b) the date that the last insured covered by
a viatical settlement transaction has died; or
(2) appoint, in writing, either the viatical
settlement provider that entered into the viatical settlement, the broker that
received commissions from the viatical settlement, if applicable, or any other
viatical settlement provider or broker licensed in this state, to make all
inquiries to the viator or the viator’s designee regarding the health status of
the viator or any other matters.
[13.9.15.9 NMAC - N, 7-1-00]
13.9.15.10 STANDARDS FOR EVALUATION OF
REASONABLE PAYMENTS: A viatical settlement company or broker shall
not enter into a viatical settlement that provides a payment to the viator that
is unreasonable or unjust. In
determining whether a payment is unreasonable or unjust, the Superintendent may
consider, among other factors, the life expectancy of the viator, the
applicable rating of the insurance company that issued the subject policy by a
rating service generally recognized by the insurance industry, regulators and
consumer groups, and the prevailing discount rates in the viatical settlement
market in New Mexico, or if insufficient data is available for New Mexico, the
prevailing rates nationally or in other states that maintain this data.
[13.9.15.10 NMAC - N, 7-1-00]
13.9.15.11 REPORTING REQUIREMENTS:
On March 1 of each calendar year, each viatical settlement provider
licensed in this state shall report all viatical settlement transactions for
which the viator is a resident of this state, and for all states in the
aggregate, containing the following information for the previous calendar year:
A. For
viatical settlements contracted during the reporting period:
(1) date of viatical settlement contract;
(2) viator’s state of residence at the time
of the contract;
(3) mean life expectancy of the insured at
time of contract, in months;
(4) face amount of policy viaticated;
(5) net death benefit viaticated;
(6) estimated total premiums to keep policy
in force for mean life expectancy;
(7) net amount paid to viator;
(8) source of policy (B-Broker; D-Direct
Purchase; SM-Secondary Market);
(9) type of coverage (I-Individual or
G-Group);
(10) whether or not viatical settlement was within the contestable
or suicide period, or both;
(11) primary international classification of
diseases (ICD) Diagnosis Code, in numeric format, as published by the U.S.
Department of Health and Human Services; and
(12) type of funding (I-Institutional;
P-Private).
B. For
viatical settlements for which death has occurred during the reporting period:
(1) date of viatical settlement contract;
(2) viator’s state of residence at the time
of the contract;
(3) mean life expectancy of the insured at
time of contract in months;
(4) net death benefit collected;
(5)
total premiums paid to maintain the policy (WP-Waiver of Premium; NA-Not
Applicable);
(6) net amount paid to viator;
(7) primary international classification of
diseases (ICD) Diagnosis Code, in numeric format, as published by the U.S.
Department of Health and Human Services;
(8) date of death;
(9) amount of time between date of contract
and date of death, in months;
(10) difference between the number of months
that passed between the date of contract and the date of death and the mean
life expectancy in months as determined by the reporting company;
C. name
and address of each viatical settlement broker through whom the reporting
company purchased a policy from a viator who resided in this state at the time
of contract;
D. number
of policies reviewed and rejected; and
E. number
of policies purchased in the secondary market as a percentage of total policies
purchased.
[13.9.15.11 NMAC - N, 7-1-00]
13.9.15.12 PAYMENT OF PROCEEDS:
A. A
trustee or escrow agent shall pay the proceeds of a viatical settlement made
pursuant to NMSA 1978 Section 59A-20A-9D by means of wire transfer to the
account of the viator or by certified check or cashier’s check made payable to
the viator.
B. A
viatical settlement provider shall pay the proceeds of a viatical settlement to
the viator in a lump sum except where the viatical settlement provider has
purchased an annuity or similar financial instrument issued by a licensed
insurance company or bank, or an affiliate of either. Neither the viatical settlement provider nor the escrow agent may
retain a portion of the proceeds.
[13.9.15.12 NMAC - N, 7-1-00]
A. Advertising
related to the viatical settlement shall be truthful and not misleading by fact
or implication.
B. If
the advertising statesthe speed with which the viatication will occur, the
advertising must disclose the average time frame from completed application to
the date of offer and from acceptance of the offer to receipt of the funds by
the viator.
C. If the advertising states the dollar amounts available to
viators, the advertising shall disclose the average purchase price as a percent
of face value obtained by viators contracting with the advertiser during the
past six (6) months.
[13.9.15.13 NMAC - N, 7-1-00]
13.9.15.14 VIATOR
RETENTION PROVISIONS: If a viatical settlement provider enters
into a viatical settlement that allows the viator to retain an interest in the
policy, the viatical settlement contract shall contain a provision that:
A. the viatical settlement provider will effect the transfer
of only the amount of the death benefit viaticated. Benefits in excess of the amount viaticated shall be paid
directly to the viator’s beneficiary by the insurance company;
B. the viatical settlement provider will, upon
acknowledgment of the perfection of the transfer, either:
(1) advise the insured, in writing, that the
insurance company has confirmed the viator’s interest in the policy; or
(2) send a copy of the instrument sent from
the insurance company to the viatical settlement company that acknowledges the
viator’s interest in the policy; and
C. apportions the premiums to be paid by the viatical
settlement company and the viator. The
viatical settlement contract may specify that all premiums shall be paid by the
viatical settlement company and may also require that the viator reimburse the
viatical settlement provider for the premiums attributable to the retained
interest.
[13.9.15.14 NMAC - N, 7-1-00]
13.9.15.15 DISCLOSURE DOCUMENTS:
A. A
viatical settlement provider or broker shall provide a disclosure document
containing the disclosures required in NMSA 1978 Section 59A-20A-8 and this
section before or concurrent with taking an application for a viatical
settlement contract.
B. The
disclosure document shall contain the following language: “All medical,
financial, personal, or patient identifying information solicited or obtained
by a viatical settlement company or viatical settlement broker about a viator
and insured, including the viator and insured’s identity or the identity of
family members, a spouse or a significant other, is confidential.” The disclosure document shall advise the
viator and the insured that such information may be provided to financing
entities, including individual and institutional purchasers.
C. A
viatical settlement provider or broker shall provide a copy of Appendix A, set
forth in 13.9.15.18 NMAC, before or concurrent with taking an application for a
viatical settlement contract.
[13.9.15.15 NMAC - N, 7-1-00]
13.9.15.16 PROHIBITED PRACTICES:
A. A
viatical settlement provider or broker shall obtain from a person that is
provided with patient identifying information a signed affirmation that the
person will not further divulge the information without procuring the express
written consent of the insured for the disclosure, except that if a viatical
settlement provider or broker is served with a subpoena and therefore compelled
to produce records containing patient identifying information, it shall notify
the viator and the insured in writing at their last known addresses within five
(5) business days after receiving notice of the subpoena.
B. A
viatical settlement provider shall not also act as a viatical settlement
broker, whether entitled to collect a fee directly or indirectly, in the same
viatical settlement.
C. A
viatical settlement broker shall not, without the written agreement of the
viator obtained prior to performing any services in connection with a viatical
settlement, seek or obtain any compensation from the viator.
D. A
viatical settlement provider shall not use a longer life expectancy than is
realistic in order to reduce the payout to which the viator is entitled.
E. A viatical settlement provider or broker shall not
discriminate in the making or solicitation of viatical settlements on the basis
of race, age, sex, national origin, creed, religion, occupation, marital or
family status or sexual orientation, or discriminate between viators with
dependents and without.
F. A
viatical settlement provider or broker shall not pay or offer to pay any
finder’s fee, commission or other compensation to any insured’s physician, or
to an attorney, accountant or other person providing medical, legal or
financial planning services to the viator, or to any other person acting as an
agent of the viator with respect to the viatical settlement.
G. A
viatical settlement provider shall not knowingly solicit investors who have
treated or have been asked to treat the illness of the insured whose coverage
would be the subject of the investment.
[13.9.15.16 NMAC - N, 7-1-00]
13.9.15.17 INSURANCE COMPANY PRACTICES:
A. Life
insurance companies authorized to do business in this state shall respond to a
request for verification of coverage from a viatical settlement provider or
broker within thirty (30) calendar days of the date a request is received. The request shall be accompanied by:
(1) a current authorization consistent with
applicable law, signed by the policyowner or certificateholder;
(2) in the case of an individual policy, a
form substantially similar to Appendix B, which has been completed by the
viatical settlement provider or broker in accordance with the instructions on
the form.
(3) in the case of group insurance coverage a
form substantially similar to Appendix C, which has been completed by the
viatical settlement provider or broker in accordance with the instructions on
the form, and which has previously been referred to the group policyholder and
completed to the extent the information is available to the group policyholder.
B. A
life insurance company and a viatical settlement provider or broker may use
another verification of coverage form that has been mutually agreed upon in
writing in advance of submission of the request.
C. A
life insurance company may not charge a fee for responding to a request for
verification of coverage from a viatical settlement provider or broker in
excess of any usual and customary charges to contractholders,
certificateholders or insureds for similar services.
D. The
life insurance company may send an acknowledgment of receipt of the request for
verification of coverage to the policyowner or certificateholder and, where the
policy owner or certificate owner is other than the insured, to the
insured. The acknowledgment may contain
a general description of any accelerated death benefit that is available under
a provision of or rider to the life insurance contract.
[13.9.15.17 NMAC - N, 7-1-00]
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 want to be sure
you understand:
1. What future benefits you may lose
2. 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
5. Check with your state insurance department.
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,
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% 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%
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 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:
1. becomes the new owner of your policy,
2. names the beneficiary,
3. collects the full death benefit when you
die,
4. begins paying premiums on the policy, and
5. 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 it will take some preliminary information from you over the phone and
send you this paperwork to sign:
1. a medical release form so the viatical
settlement provider can get and review your medical records
2. 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:
1. 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.
2. The amount of life insurance coverage.
3. Loans or advances, if any, previously taken
against the policy.
4. Amount of premiums necessary to keep the
life insurance policy in force.
5. The rating of the issuing insurance company.
6. Prevailing interest rates.
7. State laws, if any, that require a minimum
payment.
Phase 3—Closing the agreement
1. 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.
2. The closing documents are then returned to
the viatical settlement provider for its signature.
3. 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, within two business days.
In many states,
you may have the right to change your mind about the settlement AFTER you
receive the money, provided you return all the money. Typically the law allows
15 days to review your settlement arrangement.
Step 4, Know your rights
State laws
Many states have
laws that provide important consumer protections. You’ll want to contact your
state insurance department to see which of the following consumer protections
your state requires. Determine if:
1. A viatical settlement broker or viatical
settlement provider arranging viatical settlements must be licensed with your
insurance department.
2. The viatical settlement provider buying your
policy must keep your identity and medical history confidential unless you give
written consent to tell others.
3. 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.
4. You have the right to change your mind about
the settlement AFTER you receive the money, provided you return all the money.
You have 15 days to review your settlement arrangement.
5. 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 may receive benefits from a viatical settlement without owing federal
income tax:
1. persons who have been diagnosed with a
terminal illness and with a life expectancy of 24 months or less and
2. certain chronically ill individuals.
If you qualify
for this federal tax-free treatment, you also must use a viatical settlement
provider that is licensed in the state where you live, or, in states where
licensing is not required, that complies with the standards of the National
Association of Insurance Commissioners’ Viatical Settlements Model Act.
Remember that,
as when interpreting any tax laws, it’s always best to check with your own
financial advisor.
Avoiding consumer fraud
1. If you’re in good health and someone asks
you to sell your life insurance policy, proceed with caution. Remember that viatical settlements are
intended for people living with life-threatening or chronic illnesses. Contact
your state insurance department for more information.
2. If you’ve been contacted by someone who
wants you to buy a policy and then sell it immediately, you should contact your
state insurance department. You may be
a target for fraud.
3. If you’re asked to buy a life insurance
policy for the sole purpose of selling it, you may be participating in fraud.
4. If you’re asked to invest in a viatical
settlement, we recommend you contact your state insurance department to learn
more about the issues and risks that might be involved in such an
investment.
Step 5, Check with your state insurance
regulator
State licensing
Find out if your
state licenses viatical settlement providers and brokers. For a complete list of
authorized viatical settlement providers, brokers, and their representatives,
call the Department of Insurance.
Seller checklist
Before you sell
your policy be sure you know the answers to these questions.
Evaluating your needs
1. Do you still need life insurance?
2. Do you have dependents who might rely on
your life insurance benefits should anything happen to you?
3. If you don’t need life insurance protection
now, what are the chances you’ll need it in the future?
Current policy benefits
1. Can you borrow from the cash value?
2. Can you cancel the policy for its current
cash value?
3. Can you use the cash value as collateral to
get a loan from a financial institution?
4. Do you have an accelerated death benefit
feature?
Taxes and other financial considerations
1. Is the money you get from selling the policy
taxable?
2. Will the money you get from selling the
policy affect your eligibility for government benefits?
3. Do you need the advice of a tax or estate
planning specialist before you decide to sell your policy?
4. If you sell your policy, can any of your
creditors claim the money?
Understanding the process
1. If you sell your policy, who will be the
legal owner?
2. Is the viatical settlement provider buying
your policy licensed?
3. If you sell your policy, how will the value
you get be calculated? What interest rate will be used?
4. If you sell your policy but then change your
mind, can you get your money back?
5. Will investors have specific information
about you, your family or your health status?
6. How are fees or commissions paid to the
viatical settlement broker or provider?
Protections in your state
Contact your
state insurance department to find out if there are any laws governing viatical
settlements.
13.9.15.19 APPENDIX B: VERIFICATION OF COVERAGE FOR INDIVIDUAL
POLICIES
Appendix[13.9.15.19 NMAC
- N, 7-1-00]
13.9.15.20 APPENDIX C:
VERIFICATION OF GROUP LIFE INSURANCE BENEFITS
[13.9.15.20 NMAC
- N, 7-1-00]
HISTORY OF 13.9.15 NMAC:
Reserved.