Brief (1)
Sub. for HB 2306 repeals existing laws governing viatical settlements and enacts the Viatical Settlements Act of 2001. A viatical settlement is a contract arrangement wherein a person (viator) arranges through a viatical broker to sell the person's life insurance policy to a third party buyer (viatical settlement provider) for cash in an amount that is less than the death benefit of the policy. The buyer assumes the responsibility for payment of premiums and collects the entire death benefit of the acquired policy upon the death of the viator. The beneficial interest in the proceeds of the policy may be shared among several investors. Generally, it is a violation of the act for any person to enter into a viatical settlement contract within a two year period beginning with the date of issuance of the policy.
The bill requires viatical settlement providers and brokers to be licensed by the Insurance Commissioner upon submission of the proper application and payment of the prescribed fees. The license is renewable from year to year. Authority is provided to the Commissioner to refuse to issue or renew a license, as well as to revoke a license that has been issued on grounds established in the law. Extensive reporting requirements are established in the act and the Commissioner is authorized to investigate suspected fraudulent viatical settlement acts and persons engaged in the business of viatical settlements.
The viatical settlement provider or broker is required to make various disclosures to the viator no later than the time the application for the viatical settlement contract is signed. The disclosures include: identifying alternatives to the sale of the policy; that the proceeds to the viator may be taxable; that the proceeds may be subject to the claims of creditors; that receipt of the proceeds may affect eligibility for other government benefits or entitlement; and that the viator has the right to rescind the contract for 15 calendar days after receipt of the proceeds.
The bill makes clear that advertisements by viatical settlements providers be clear, truthful, and provide adequate disclosure of the benefits, risks, limitations, and exclusions of any viatical settlement contract. The extensive advertisement provisions apply to all advertising, including Internet advertising viewed by persons located in this state.
Finally, the bill addresses the issue of fraudulent viatical settlement acts and requires, among other things, that viatical settlement contracts and applications for viatical settlements contain the following statement or a substantially similar statement: "Any person who knowingly presents false information in an application for insurance or viatical settlement contract is guilty of a crime and may be subject to fines and confinement in prison." Additionally, viatical settlement providers and brokers must have in place antifraud initiatives reasonably calculated to detect, prosecute, and prevent fraudulent viatical settlement acts. Penalties for violations of the act range in severity from misdemeanors to felonies depending upon the value of the viatical settlement contract. Also, any violation of the act will be considered an unfair and deceptive act or practice and subject to administrative remedies in current law.
Background
Sub. for HB 2306 was requested by the Insurance Commissioner whose representatives noted that viatical settlements are complicated transactions and that the nature of the viatical industry, while originally limited to purchasing policies of persons with life threatening or catastrophic illnesses, has dramatically changed. Now, persons perceived to be over-insured are being approached to sell their policies. Given this expanded market, Sub. for HB 2306 contains many provisions considered by proponents as necessary to protect consumers, to prevent fraud, to provide appropriate disclosures and alternatives to sales, to set standards and guidelines for advertising, and enforcement authority to the Commissioner to carry out the provisions of the act.
The bill is supported by Kansas Association of Insurance and Financial Advisors, the American Council of Life Insurers, and Viaticus, Inc.
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext.cgi