Wis. Admin. Code Office of the Commissioner of Insurance, ch. Ins 2, app III
WISCONSIN GUIDE TO PURCHASE OF A LIFE SETTLEMENT
Keep this important information
Thinking about buying a life settlement as an investment? Life settlements allow life insurance policyholders to sell their policies for an immediate cash benefit that is less than the face value of the policy. In return, the buyer of the life settlement becomes the new owner or beneficiary of the life insurance policy, is responsible for payment of future premiums, and collects the death benefit when the insured dies. Typically, interests in the settled life insurance policies take the form of securities and are sold to investors. Multiple investors may invest in a single policy, or the investors may own an interest in an underlying pool of settled policies. When the insured dies the investor who has purchased an interest in the settled policy is entitled to collect a portion of the death benefit in accordance with the terms of the purchase contract. From an investor's perspective a life settlement is an investment in the timely death of the insured person. Before you put your money into this type of investment it is critical that you understand the risks involved, know how your investment will be used, and know what the likely return will be. You should consult with a professional financial advisor, review Wisconsin regulations relating to the purchase of a life settlement, and deal with a licensed life settlement provider and registered securities broker dealer.
Questions to ask before you purchase a life settlement:
* Is the principal and return on my investment guaranteed?
* How is the return on my investment determined?
* When will the principal and return on my investment be paid?
* What fees or other costs am I required to pay?
* Will I ever be required to pay the premiums on the insurance policy?
* Will I be an owner of the policy or only a beneficiary?
* What happens if the settlement company becomes insolvent or goes out of business?
* What happens if the life insurance policy is later determined to be null and void?
* What is the experience and qualification of the person who determines the life expectancy of the insured?
It is important to know:
* A life settlement is not a liquid investment. It cannot be "cashed in" if you change your mind. There is no return on your investment until the insured dies and the death benefit is paid by the insurance company.
* There is no guaranteed annual rate of return. The rate of return depends on when the insured dies, which cannot be precisely predicted. You should find out the life expectancy of the insured and how the determination was made.
* Premiums must be paid on the life insurance policy that is the subject of a life settlement until the insured dies. Find out who is responsible for paying the premiums and whether you may ever be responsible for the payment.
* If the life insurance policy is a group policy there is a risk that the employer or insurer may terminate the policy, and there may be no right to convert the original coverage to an individual policy, or there may be limitations in any conversion right. If the policy is converted there may be additional premiums.
* If the life insurance policy is term insurance the policy is issued for a certain number of years. If the insured outlives the term of the policy there will be no death benefit.
* Insurance companies may contest the validity of a life insurance policy for a period of two years from the date of its issue for a variety of reasons, including suicide or false information, which could result in denial of a death benefit claim.
* If the purchaser of a life settlement is the beneficiary only and not also the owner of the life insurance policy, there is a risk that the beneficiary could be changed or that the premium may not be paid.
* You should consult with a tax advisor to determine whether there may be a tax impact, particularly if money from retirement funds is used to purchase a life settlement.
Questions or complaints? Contact your insurance company or agent:
(Insurer name)
(Customer service)
(Address)
(Toll free telephone number, if available)
(Telephone number)
You may also contact the Wisconsin Office of the Commissioner of Insurance at 1-800-236-8517 or 608-266-0103; Email: ociquestions@wisconsin.gov.
Wis. Admin. Code Office of the Commissioner of Insurance, ch. Ins 2, app III