Wisconsin Administrative Code › Office of the Commissioner of Insurance › Chapter Ins 2 - Life Insurance › Appendix III

Current through June 24, 2024
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.