Informational Guide for Consumers
What is a Life Settlement?
A life settlement is a sale to a third party of an in-force life insurance policy for more than its cash surrender value, but less than its death benefit.
Life Settlement Fraud
Fraudulent activities exist within the Life Settlement industry. It is critical that consumers, policyowners, insureds and advisors are informed in order to avoid mistakes that may lead to unlawful practices. As with all important business transactions, insureds and policyowners must be careful not to be the victims of fraud or to become involved in a fraudulent scheme in connection with a life settlement. These policy owners and insureds are often older individuals who may be more vulnerable to fraud.
The life settlement industry wants to help consumers avoid and be aware of such schemes.
According to New York Penal Law §176.40 a fraudulent life settlement act is committed by any person who, knowingly and with intent to defraud, presents, causes to be presented, or prepares with knowledge or belief that it will be presented to, or by, a life settlement provider, life settlement broker, life settlement intermediary, or any agent thereof , or to any owner any written statement or other physical evidence as part of, or in support of, an application for a life settlement contract, a claim for payment or other benefit under a life settlement contract, which the person knows to:
A. contain materially false information concerning any material fact thereto; or
B. conceal, for the purpose of misleading, information concerning any fact material thereto.
Why You Should Be Informed?
When a person commits any type of insurance fraud, the consumer is the one who pays the ultimate price for the fraud.
Fraudulent activity is also damaging to the life insurance and life settlement markets.
Any individual who intentionally presents false information about his/her health or financial status on a life settlement application may be guilty of crime and may be subject to fines or criminal prosecution.
Participation in defrauding of an insurer or a life settlement company may affect your ability to obtain insurance in the future.
What is a “STOLI” policy?
According to New York Insurance Law §7815, Stranger Originated Life Insurance (“STOLI”) is an act or practice at or prior to policy issuance, to initiate or facilitate the issuance of a policy for the intended benefit of a person who, at the time of policy origination, has no insurable interest in the life of the insured under the laws of New York.
In a STOLI transaction, a third party owns and controls the policy at inception, in violation of New York Insurance Law.
Tips to Prevent Life Settlement Fraud
Helpful tips to prevent fraud:
Review all documents, forms, and applications for completeness.
Never sign documents that have not been appropriately completed.
Answer all questions on the application accurately and honestly.
Conduct business only with persons holding a current and proper license as required by New York law.
The licensing status of a broker or life settlement provider can be obtained from the New York State Department of Financial Services.
Question a transaction that sounds too good to be true.
Where Do I Go For More Help?
New York State Department of Financial Services
To report suspected fraud:
Coalition Against Insurance Fraud
Life Insurance Settlement Association
For further information, please review Article 78 of the New York Insurance Law.