Code of Maine Rules › 02 - DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION › 032 - OFFICE OF SECURITIES › Chapter 539 - OFFERS AND SALES OF VIATICAL OR LIFE SETTLEMENT CONTRACTS › Viatical Disclosure Document I

Current through 2024-29, July 17, 2024
This disclosure document is mandated by the State of
				  Maine Office of Securities.
Viatical Disclosure Document I
Read Before You Purchase
We are offering to sell you an investment called a
viatical or life settlement contract
. A
viatical or life
				  settlement contract
is an agreement for the purchase of the death
				  benefit of a life insurance policy. The owner of the life insurance policy
				  being sold is called the
owner
. The individual whose life is
				  insured by the policy is called the
insured
.
Some policies are sold because the insureds are terminally
				  ill and need money for medical treatment or other expenses. Other owners or
				  insureds are only chronically ill or are not ill at all, but want to sell their
				  policies because their families are grown or they otherwise no longer need the
				  life insurance. This latter type of viatical or life settlement contract may be
				  called a life settlement, senior settlement, elder settlement, or other similar
				  name.
When the insured dies the investor receives a specific dollar
				  amount that will be greater than the amount paid for the contract.
Some companies sell entire policies to investors, and others
				  sell partial interests in policies. If you purchase a partial interest, the
				  remaining interests in the policy will be sold to other investors.
RISKS
1.
The rate of return on your
				investment cannot be calculated before the insured dies.
The longer the
				insured lives, the
lower
the rate of return on your investment
				will be.
2.
No one can
				accurately predict the actual life expectancy of an insured.
Some
				factors that may affect the accuracy of a prediction are: 
				
										The experience and qualifications of the medical
					 personnel making the life expectancy prediction;
										The nature of the insured's illness, if any;
										Future breakthrough treatments and cures; or
										If the insured has AIDS, the definition of AIDS used by
					 the viatical company.
Predicting the life expectancy of someone who is chronically
				  ill or not ill at all may be even more difficult than predicting the life
				  expectancy of a terminally ill person. Therefore, investing in the insurance
				  policy of a chronically ill or healthy person may be even more risky than
				  investing in the policy of someone who is terminally ill.
3.
You may have to pay money in
				addition to your initial investment.
The insurance company will cancel the policy in which you
				  have invested if periodic premium payments are due and are not made to keep the
				  policy in force. The insurance company
will not pay the death
				  benefit
if the policy is not in force.
Some of the money you invest probably will be set aside to
				  pay premiums. However, if the insured lives longer than expected, you may be
				  required to pay
additional
premiums to keep the policy in
				  force.
Also, you may be offered a policy for which no premiums are
				  being paid because the insurance company has waived the premiums for some
				  reason. In certain circumstances, the waiver of premiums may be cancelled, and
				  premium payments will then be required. You may be required to pay those
				  premiums.
It is also possible that the owner or insured will be
				  permitted to keep certain rights under the insurance policy, even though the
				  policy is sold to investors. These rights include the right to disability
				  income and payment for accidental death or disability. If the insured lives
				  longer than expected, you may be required to pay additional premiums to keep
				  these retained rights in force.
4.
Being a beneficiary of a policy and
				not also an owner carries special risks.
A person who buys life insurance is the owner of the policy
				  and decides who the beneficiaries of the policy will be - that is, who will
				  receive the death benefit when the insured dies. When the policy is sold as a
				  viatical or life settlement contract, investors become the new beneficiaries
				  and therefore are entitled to receive the death benefit.
The new
owner
of the policy may be either the
				  investors themselves or the viatical company. Only an
owner
of a
				  policy,
not a beneficiary
, has the right to make premium payments
				  directly to the insurance company so that the policy will remain in
				  force.
If premiums are due, and if the funds that have been set
				  aside to pay premiums run out, you will be dependent on the viatical company to
				  collect additional premium money from investors and to pay premiums promptly.
				  If that company goes out of business or otherwise fails to collect premiums
				  from investors, you may not be allowed to pay the premiums yourself if you are
				  only a beneficiary.
5.
Term insurance policies carry special risks.
A term insurance policy is issued for a specific time period.
				  The insurance company will not pay the death benefit if the insured outlives
				  that time period. If you purchase a term policy, you will be dependent on the
				  viatical company to renew the policy when the term expires. Even if the policy
				  is renewed, premiums may increase due to a change in the health of the
				  insured.
6.
Contestable policies carry special risks
.
The insurance company may "
contest
" a policy for
				  a two-year period after its issuance if the company finds a reason to cancel
				  the policy. The insurance company
will not pay the death benefit
if
:
the insured dies within the contestability period;
					 and
										the insurance company has a reason to cancel the
					 policy.
One example of a reason that an insurance company might
				  cancel a policy: untruthful answers on the policy application.
The policy may also be cancelled if the insured commits
				  suicide within the two-year contestability period.
7.
Group policies carry special
				risks
.
A group policy insures the members of a specific group of
				  people, usually the employees of an employer. The biggest risk for someone who
				  invests in a group policy is that the policy can be terminated by the employer
				  or the insurance company. Although the policy will contain a provision allowing
				  your interest to be converted to an individual policy, there may be limits or
				  restrictions on the right to convert.
Also, the insurance company may charge additional premiums
				  once the policy is converted.
8.
Investing IRA money in a viatical or
				life settlement contract carries special risks.
Internal Revenue Code section 408(a)(3) requires that "no
				  part of trust [IRA] funds will be invested in life insurance contracts." This
				  means that the Internal Revenue Service may not allow you the tax benefits of
				  an IRA if you invest in a viatical or life settlement contract.
Even if such an investment is allowed, you should carefully
				  consider your age, the life expectancy of the insured, and the difficulty in
				  predicting life expectancy before investing IRA funds in a viatical or life
				  settlement contract. Since death benefits are not paid until the insured dies,
you may encounter a problem taking annual distributions from your IRA
				  that are mandatory beginning at age 701/12.
If the funds are not
				  available to take the mandatory distribution, you will be penalized by the
				  IRS.
9.
An investment
				in a viatical or life settlement contract is not a liquid investment
.
The death benefit on a viatical or life settlement contract
				  will not be paid until the insured dies, and there is no established secondary
				  market for viatical or life settlement contracts. This means that you will
				  probably not be able to sell your contract in an emergency to raise money for
				  your immediate needs.
10.
Tracking the whereabouts and health of the insured may not occur or may
				not be successful.
Someone must track the whereabouts and health of the insured
				  and, at the time of the insured's death, obtain a copy of the death certificate
				  and file a claim for death benefits with the insurance company on your behalf.
				  You have no way of determining whether these tracking activities are actually
				  occurring. If the tracking system fails and a death certificate is not provided
				  to the insurance company to verify the death, no benefits will be paid.
The longer the life expectancy of the insured, the longer the
				  insured will need to be tracked and the more likely it will be that the
				  tracking system will fail.
11.
Check any promises of guarantees
				carefully.
The viatical company from which you purchase your viatical or
				  life settlement contract may provide a performance or fidelity bond, or another
				  similar instrument, with your purchase. The purpose of these instruments is to
				  "guarantee," or "insure," your investment. Ask exactly what is being
				  guaranteed. Also ask the sales person for a copy of the instrument.
If the company issuing the "guarantee" does not have the
				  necessary financial resources to make payments under the "guarantee," you will
				  not receive any benefit from the "guarantee."
You should do a background check on the company issuing the
				  guarantee instrument. Contact the appropriate regulator to verify that the
				  company exists and is in good standing. Obtain a copy of the company's most
				  recent financial statements.
The terms of the contract between the company issuing the
				  "guarantee" and the viatical company may also affect how valuable, or useful,
				  the "guarantee" is to you. Ask for a copy of this agreement.
Do not assume that you will be fully protected by a guarantee
				  stating that if the policy you invest in is cancelled by the insurance company
				  for any reason, the company that sells you the investment will replace it with
				  another one. If the company goes out of business, there will be no one to give
				  you a replacement policy.
12.
You could lose some of the death
				benefit you have purchased if the insurance company that issued the life
				insurance policy goes out of business
.
Insurance companies are rated based on their financial safety
				  and soundness. A lower rating means that the company is more likely to go out
				  of business.
Each State maintains an insurance guarantee fund for the
				  benefit of policyholders of insurance companies that have gone out of business.
				  The guarantee fund may impose a limit on the amount that can be recovered on
				  each policy.
Also, the payment on your viatical or life settlement
				  contract would be delayed if you needed to seek funds from this guarantee fund
				  or from the receivership of the insurance company. This delay would reduce the
				  rate of return on your investment.
13.
You should seek legal advice to
				help you understand the nature of this investment, the terms and conditions of
				any contract you are asked to sign, and the tax consequences of your decision
				to invest.
Investing in a viatical or life settlement contract is
				  risky. Be aware that this type of investment may involve risks in addition to
				  those discussed above.
The Maine Office of Securities is the agency of state
				  government responsible for the licensing of brokerage firms, investment
				  advisers and their employees, the registration of investment products, and
				  enforcement of the State's securities laws. Anyone with questions or concerns
				  about viaticals or other investments may call the Maine Office of Securities
				  toll-free at 1-877-624-8551. We may be reached by mail at Maine Office of
				  Securities, 121 State House Station, Augusta, ME 04333-0121.