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BULLETIN 374

Life Insurance Policyholder Notice

(Supersedes Bulletin 370)

 

The Maine Viatical and Life Settlements Act requires the Superintendent of Insurance to develop an informational brochure to apprise consumers of their rights as owners of life insurance policies.1

Life insurers must provide copies of this brochure to policy owners in certain situations. This requirement applies only to individual life insurance. Group life insurance policies are not subject to this notice requirement.

Individual Life Insurance Notice

Life insurers must provide copies of this brochure to owners of individual life insurance policies when the insured is 60 years of age or older, or is known by the insurer to be terminally ill or chronically ill, and:

(1) the policyowner has requested the surrender of the policy in whole or in part;

(2) the policyowner has requested an accelerated death benefit; or

(3) the insurer sends an initial notice that the policy may lapse.

Insurers must begin providing copies of the informational brochure to all policyholders described in the statute no later than September 1, 2010. The brochure is Attachment 1 to this Bulletin. Insurers may reproduce the brochure as necessary, and may download copies at:

http://www.maine.gov/pfr/insurance/producer/life_settlement_brochure_05202010.html

Insurers that wish to provide standardized notice on a multistate basis may use an alternative notice, Attachment 2 to this Bulletin, based on the Washington Life Settlement Regulation, WAC 284-97-910, which may be downloaded at:

http://www.maine.gov/pfr/insurance/producer/alternative_life_settlement_brochure_05202010.html

The statute refers to “notice to the policyowner that there may be alternative transactions available, including a copy of the superintendent’s brochure.” The Bureau of Insurance has received questions as to whether this requirement contemplates some additional notice above and beyond the brochure. Sending the brochure is sufficient to satisfy the notice requirement. No cover letter or other additional information is required.

The Bureau will be conducting rulemaking to further clarify the statutory notice requirements discussed above. In the interim, it is the expectation of the Bureau that an insurer will send proper and timely notice to the owner of any individual life insurance policy with death benefits over $100,000 when:

  • the insured is 60 years of age or older, or is known by the insurer to be terminally ill or chronically ill, and:

    a. the policyowner has requested the surrender of the policy in whole or in part or has requested an accelerated death benefit; or

    b. the policyowner has failed to pay premium when due.

Further, life insurance for the purposes of this notice requirement does not include credit life or benefits limited to death by accident or other specified causes. Timely notice means that the policyowner has at least one month after the notice is sent in which to maintain or reinstate the policy or to rescind the policy surrender or accelerated death benefit, without fees or penalties.

1 24-A M.R.S.A. §6808-A(4).

 

June 18, 2010 ______________________________________
Mila Kofman
Superintendent of Insurance

 

NOTE: This bulletin is intended solely for informational purposes. It is not intended to set forth legal rights, duties or privileges nor is it intended to provide legal advice. Readers should consult applicable statutes and rules and contact the Bureau of Insurance if additional information is needed.


 

Attachment 1

Important information about your life insurance policy

Prepared by the Maine Bureau of Insurance

Life insurance is a critical part of a broader financial plan. There are many options available, and you have the right to shop around and seek advice from different financial advisers in order to find the option best suited to your needs.

You are encouraged to consider the following possible alternatives to requesting a surrender of your life insurance policy, requesting accelerated death benefits under your life insurance policy, or letting your life insurance policy lapse. These alternatives include, but are not limited to:

  • Accelerated Death Benefit: Your policy may provide an early or accelerated discounted benefit payment if you have a terminal or chronic illness.
  • Cash Surrender: Your policy may have a cash surrender value your life insurer would pay you if you cancel it.
  • Gift: You may be able to give your policy to your beneficiary, who would then assume responsibility for paying premiums.
  • Life Settlement: You may be able to sell your life insurance policy to a third party for an amount greater than the cash surrender value or accelerated death benefits under your policy. You pay no further premium. The third party becomes the policyholder and receives the benefit upon the insured’s death.
  • Maintain Your Policy: You may be able to maintain your life insurance policy in force by paying the premiums directly or using your current policy values to pay the premiums.
  • Policy Changes: You may be able to reduce or eliminate future premium payments by obtaining a paid-up policy, by reducing optional coverages, or through other options available from your life insurer.
  • Policy Loan: You may be able to take out a loan from your life insurance company using the cash value of your policy as collateral. Loan proceeds can be used to pay the premiums or for other purposes.
  • Third-Party Loan: You may be able to get a loan from another party to pay your policy’s premiums. In return, the lender may require an assignment of a portion or all of the policy’s death benefits.

These options may or may not be available depending on your circumstances and the terms of your life insurance policy. Please see your policy or contact your life insurance company, financial adviser, agent, or broker to determine your particular options.

IMPORTANT INFORMATION: Maine law requires life settlement brokers to have a proper license. If you are approached to sell your policy or if you are looking to sell your policy, please check with the Maine Bureau of Insurance for a list of licensed life insurance producers.

If you are a Maine resident and have questions about life insurance and your rights, contact the Maine Bureau of Insurance at 1-800-300-5000, or go to www.maine.gov/pfr/insurance. Ask questions if you don’t understand your policy.

COMMONLY USED TERMS

Accelerated death benefit: A benefit allowing terminally ill or chronically ill life insurance policyholders to receive cash advances of all or part of the expected death benefit. The accelerated death benefit can be used for health care treatments or any other purpose.

Cash surrender value: This term is also called “cash value,” “surrender value,” and “policyholder’s equity.” The amount of cash due to a policyholder who cancels his or her life insurance policy before it matures or death occurs.

Expected death benefit: The amount that the insurance company would pay the beneficiaries named in the life insurance policy if the insured died today.

Face amount: The death benefit the insurer is required to pay the beneficiaries named in the life insurance policy upon the death of the insured, as stated in the policy. The actual death benefit may differ due to such factors as policy loans, failure to pay premiums, and for some types of policies, investment performance.

Lapse: Refers to a life insurance policy ending or expiring when a policyholder stops making premium payments.

Life settlement: A contract in which the policyholder sells his or her life insurance policy to a third party for a payment that is less than the expected death benefit of the policy. Life settlements include viatical settlements, defined below.

Policy loan: A loan issued by an insurance company using the cash value of a person’s life insurance policy as collateral.

Viatical settlement: An arrangement in which someone with a terminal illness sells his or her life insurance policy at an amount less than the death benefit. The ill person receives cash, and the buyer receives the full amount of the death benefit. This death benefit is payable once the former policyholder dies.

This brochure is for informational purposes only and does not constitute an endorsement of any of the options described above.


Attachment 2 (Optional Alternative Version)

Important information about your life insurance policy
from the Maine Bureau of Insurance

Life insurance is a critical part of a broader financial plan. There are many options available, and you have the right to shop around and seek advice from different financial advisers in order to find the option best suited to your needs.

You are encouraged to consider the following possible alternatives to [requesting a surrender of your life insurance policy, requesting accelerated death benefits under your life insurance policy, or letting your life insurance policy lapse.*]. These alternatives include, but are not limited to:

  • Accelerated Death Benefit: Your policy may provide an early or accelerated discounted benefit payment if you have a terminal or chronic illness.
  • Cash Surrender: Your policy may have a cash surrender value your life insurer would pay you if you cancel it.
  • Gift: You may be able to gift your policy to your beneficiary, who would then assume responsibility for paying premiums.
  • Life Settlement: You may be able to sell your life insurance policy to a third party for an amount greater than the cash surrender value or accelerated death benefits under your policy. You pay no further premium. The third party becomes the policyholder and receives the benefit upon the insured’s death.
  • Maintain Your Policy: You may be able to maintain your life insurance policy in force by paying the premiums directly or using your current policy values to pay the premiums.
  • Policy Changes: You may be able to reduce or eliminate future premium payments by obtaining a paid-up policy, by reducing optional coverages, or through other options available from your life insurer.
  • Policy Loan: You may be able to take out a loan from your life insurance company using the cash value of your policy as collateral. Loan proceeds can be used to pay the premiums or for other purposes.
  • Third-Party Loan: You may be able to get a loan from another party to pay your policy’s premiums. In return, the lender may require an assignment of a portion or all of the policy’s death benefits.

These options may or may not be available depending on your circumstances and the terms of your life insurance policy. Please see your policy or contact your life insurance company, financial advisor, agent or broker to determine your particular options.

If you’re a Maine resident and have questions about life insurance and your rights, contact the Maine Bureau of Insurance at 1-800-300-5000, or go to www.maine.gov/pfr/insurance. Ask questions if you don’t understand your policy.

Here’s a list of commonly used terms:

Accelerated death benefit: A benefit allowing terminally ill or chronically ill life insurance policyholders to receive cash advances of all or part of the expected death benefit. The accelerated death benefit can be used for health care treatments or any other purpose.

Cash surrender value: This term is also called “cash value,” “surrender value,” and “policyholder’s equity.” The amount of cash due to a policyholder who requests the insurance company cancel their life insurance policy before it matures or death occurs.

Expected death benefit: The face amount of the policy, less any policy loan amounts, that the insurance company is expected to pay the beneficiaries named in the life insurance policy upon the death of the insured.

Lapse: Refers to a life insurance policy ending or expiring when a policyholder stops making premium payments.

Life settlement: Refers to a contract in which the policyholder sells his or her life insurance policy to a third party for a one-time cash payment which is greater than the cash surrender value, but less than the death benefit of the policy. A life settlement includes a viatical settlement, defined below.

Policy loan: A loan issued by an insurance company using the cash value of a person’s life insurance policy as collateral.

Viatical settlement: An arrangement in which someone with a terminal illness sells his or her life insurance policy at an amount less than the death benefit. The ill person receives cash, and the buyer receives the full amount of the death benefit. This death benefit is payable once the former policyholder dies.

This brochure is for informational purposes only and does not constitute an endorsement of any of the options described above.

* A life insurance company should choose among these three phrases to state the appropriate phrase that fits the situation of the particular policy owner to whom the notice is being sent.

 

Last Updated: September 27, 2010