California no longer allows an individual to buy a life insurance policy for investors, and anyone who handles the sale of second-hand life insurance policies–so-called life settlements–must be licensed.
Senate bill 98 prohibits the sale of an existing life insurance policy to a third party for more than its cash surrender value but less than its death benefit for two years after it is issued.
The bill was one of over 400 bills signed into law by Gov. Arnold Schwarzenegger in a last minute flurry after he had threatened to veto all bills until the Legislature settled a water issue.
With the bill, California becomes the 34th state to regulate the life settlement market. The market has been growing rapidly in recent years. According to the bill, the market was estimated at $13 billion in 2006 and will grow to an estimated $150 billion over the next 10 years.
The Coventry Group, which markets life settlements, said that the law protects consumers and ensures “that California’s life insurance policyowners are able to obtain the best value for life insurance policies that are likely to be lapsed or surrendered.”
The Life Insurance Settlement Association called the law “a nice gift.”
The Association of California Life and Health Insurance Companies said, in supporting the bill, that law was needed to curb some of the predatory practices inflicted on seniors and other consumers by persons trying to get them to enter into a “stranger-originated life insurance” agreements, transactions which are commonly known by the acronym STOLI.
The new law contains a number of provisions, including:
–Individuals brokering or soliciting life settlement transaction in the state must be licensed by the state insurance commissioner, and to get licensed they must completing 15 hours of state-approved training in settlements.
–Insurers may not restrict lawful transfers of policy ownership.
–Agents and brokers arranging settlements must disclose all offers made on their policy and divulge any business relationship, including compensation, with any person making an offer on a policy.
–Individuals may cancel a settlement 30 days after signing the agreement or 15 days after receiving the proceeds, depending on which comes first.
–Terminally ill persons selling a policy must be certified as being of sound mind by a physician.
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