The Senate passed the Life Settlement/STOLI Bill (Breslin S 66009) Monday evening, November 16, 2009 at 7:25 pm.
Mark Yavornitzki, CAE, GR Initiatives, LLC, and the NAIFA – NYS lobbyist, reported that the Life Settlement/STOLI Bill, supported by LICONY, NAIFA – NYS, and the Life Settlement organizations passed 62-0 after being endorsed on the floor by Insurance Chair Neil Breslin (D-Albany) - who called it the most important bill to come out of the Insurance Committee this session -and Senators John DeFrancisco (R-Syracuse) and James Seward (R-Oneonta).
Senators Seward and DeFrancisco were authors of the Bill last session when Republicans controlled the Senate. They were able to pass the Bill in the Senate at the end of the 2008 session, but it was not brought up in the Assembly at that time.
Yesterday evening, the Assembly Bill - A 40009 Morelle, was reported to the floor, S 66009 was substituted and at 9:20 pm was passed 131-0.
Please note that the NAIFA – New York State’s efforts to bring the Bill to a vote during the last meeting of the Senate in September of this year, was a major factor in reminding the Senators of the significance and relevance of this Bill, and our involvement ultimately aided in its unanimous passage last night.
Please find, below, the NAIFA – NYS position paper that was submitted in support of this Bill.
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SUPPORT MEMO
Life Settlement Regulation & Stranger-Originated Life Insurance
Extraordinary SessionBills: S66009 (Breslin)/A40009 (Morelle)
11/16/09
NAIFA-NYS (National Association of Insurance and Financial Advisors, - New York State) representing over 3,000 life insurance agents and financial advisors throughout the state, strongly urges the passage of this bill.
This bill would provide a new comprehensive statutory framework to regulate the life settlement business, including enhanced consumer protections, particularly a provision which prohibits life settlement providers, life settlement brokers or their representatives from engaging in the practice Stranger-originated life insurance (STOLI)
Since 2003 we have continued to urge the enactment of legislation that would regulate viatical and life settlement transactions in New York State. NAIFA- NYS realizes that Viatical/life settlements, although having the potential for a positive financial benefit for the consumer, also possess the potential for abuse.
During the AIDS epidemic, many seriously ill individuals with life insurance policies sold their policies to pay for medical care, experimental medical treatments or other essential needs. Article 78 of the Insurance Law was enacted to regulate such transactions, where an insured with a catastrophic or life-threatening illness or condition sells his or her life insurance policy. These transactions - known as viatical settlements - are carried out by viatical settlement companies and viatical settlement brokers regulated by the Department under Article 78.
Recently, a new life settlement market has developed, where the insureds who do not have a catastrophic or life-threatening illness or condition are selling their policies. The insured individuals generally are senior citizens who may no longer want or need their policy and who are able to obtain a monetary benefit greater than the cash surrender value but less than the death benefit of the policy by selling their policy to a life settlement provider. These transactions fall outside the scope of the existing Article 78 and regulatory oversight of these transactions is needed.
Over the past four years, we have grown increasingly concerned over a new form of life settlements that has been called by various names – most recently, STOLI- Stranger-originated life insurance. These transactions are rife with abuse. Under these schemes, life insurance policies are initiated solely for the purpose of selling them to the secondary market and then reselling them to investors within a very short period of time. Wealthy senior citizens are targeted by settlement companies and are told they can get life insurance for free for a period of 2 or 3 years if they complete a policy application and sign a premium loan note. Upon the loan coming due, the senior either gives the policy to the lender or because repayment of the premium loan is cost prohibitive, sells it to the settlement company. The third party investors own the policy and will profit from the death of the seniors, the settlement company profits substantially and the senior’s capacity to purchase life insurance is used up.
In addition, the bill includes a provision entitled Stranger Originated Life Insurance (known as STOLI) that prohibits life settlement providers (who purchase the life insurance policies from the original policy owners), life settlement brokers (who broker the life settlement transaction between the original owner of the policy and the life settlement provider) or their representatives from engaging in any activity that would facilitate the issuance of a policy for the intended benefit of a person who has no insurable interest in the life of the person insured under the policy.
This bill would regulate all such transactions whether or not the insured has a catastrophic or life threatening illness or condition and uses the term life settlements to describe both types of situations.
S66009/A40009 would allow for the continuation of the practice of selling an unneeded life insurance policy asset on the secondary market, while providing for significant new disclosures to seniors who are considering this transaction, so that they understand the potential downside that may occur if they sell their life insurance. Disclosure provisions in the bill will ensure that senior citizens considering the settlement of their life insurance policy are doing so for all of the right reasons.
NAIFA-NYS strongly supports the passage of this bill during this Extraordinary Session because this is a totally unregulated market and, because there are bad players out there, it is sorely in need of regulation.
Various versions of this bill have been introduced, amended and deliberated for five years. It is time to regulate this market now.
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For further information contact:
David Dreifuss, JD, MBA
Executive Director –NAIFA-NYS
(212) 221-3500 ext 304
Mark Yavornitzki, CAE
Government Relations Representative
(518) 281-4972
Our members are continuing a 91 year tradition of upholding the highest ethics of their profession, and take pride in assisting their clients in making important financial decisions on issues ranging from asset management, growth of net worth, employee benefits, retirement and elder planning, life, health, long term care and disability insurance planning, Medicare, Medicaid, college funding, and business, succession and legacy planning.
