You may know a producer who has handled a life settlement and told you what a great deal it was for their clients and how they received an excellent commission. You may think it sounds too good to be true, remembering the bad press you read about the industry in its early days. You might have heard about states enacting laws regulating the settlement industry and wonder what impact they have on agents.
What you need to know is that these new laws regulating the life settlement industry are a huge plus for you and your clients. As you learn about these regulations and the credibility and legitimacy they bring to the industry, you'll likely become more comfortable bringing the settlement option to your clients.
State regulations
There are now 39 states that regulate viatical settlements, life settlements, or both, and virtually every other state is considering such regulation. Fortunately, you don't have to know the laws in all 39 states. Most producers will only need to become familiar with the laws in one state.
The only law that impacts you is the law of the state where the owner of the policy resides. For instance, if you have a client who lives in Georgia, and they are interested in selling a policy, you only need to be in compliance with Georgia law in order to assist the client with a settlement.
In states that have no regulation or only regulate viatical settlements, you don't have to do anything extra in order to assist a client with a life settlement. However, if you have a terminally ill client who wishes to sell their policy, and the policy owner lives in a state that regulates viatical settlements, then you will need to comply with the laws of that state.
It's important to note that regulations are evolving rapidly, so any time you assist a client with a settlement, it is advisable to check with the appropriate state's department of insurance or a legal professional to find out whether the laws of that state have changed.
Industry players
The laws of most states impact two major players: life settlement brokers and providers. In many states, the settlement broker must be a life insurance agent who has held their life license for more than 12 months. In others, they must apply for and receive a separate settlement broker's license.
Providers are the only entities lawfully permitted to buy policies from the policy owners who reside in a regulated state. Providers are required to be licensed, and it is critical to make certain that any provider you deal with is licensed in the state where the policy owner lives.
If you are a licensed life agent who has held your license for more than a year, then you don't have to get a special license in order to help a client with a viatical or life settlement in the following states: Arkansas, Colorado, Connecticut, Florida, Georgia, Indiana, Kentucky, Louisiana, Maine, Maryland, Montana, Pennsylvania, and Utah. All you have to do is notify the state that you are going to assist with a viatical or life settlement and then pay a small registration fee.
Other states may impose additional requirements, so seek advice from the appropriate state department of insurance, legal professional, or reputable provider's compliance department to determine exactly what paperwork you need to file.
When you deal with a sophisticated, high-net-worth client who lives in a regulated state, you can explain to them that the legislature in their state has given its stamp of approval to the life settlement industry by regulating it.
The bottom line is that regulation of the secondary market for life insurance helps to promote responsible legislation that balances the interests of all involved parties.
James W. Maxson is executive vice president and general counsel for Habersham Funding LLC, a life settlement provider. He can be reached at jmaxson@habershamfunding.com.
