§ 78A-13. Disclosures required in offer and sale of viaticals. - North Carolina Statutes

§ 78A ‑13.  Disclosures required in offer and sale ofviaticals.

(a)        DisclosuresRequired Prior to Signing of Purchase Agreement or Transfer of Consideration. –The following disclosures shall be required in the offer and sale of viaticalsettlement contracts, whether such offer and sale is pursuant to an exemptionfrom registration or pursuant to the registration of such securities, and shallbe conspicuously displayed in each viatical settlement purchase agreement or ina separate document signed by the viatical settlement purchaser and by theissuer or its sales agent:

(1)        Disclosures prior topayment of consideration. – On or before the date the viatical settlementpurchaser remits consideration pursuant to the purchase agreement, the viaticalsettlement purchaser shall be provided the following written disclosures:

a.         The name, principalbusiness, and mailing addresses, and telephone number of the issuer;

b.         The suitabilitystandards for prospective purchasers as set forth by rule or order promulgatedby the Administrator;

c.         A description of theissuer's type of business organization and the state in which the issuer isorganized or incorporated;

d.         A brief descriptionof the business of the issuer;

e.         If the issuerretains ownership or becomes the beneficiary of the insurance policy, an auditreport from an independent certified public accountant together with a balancesheet and related statements of income, retained earnings, and cash flows thatreflect the issuer's financial position, the results of the issuer'soperations, and the issuer's cash flows as of a date within six months beforethe date of the initial issuance of the securities described in thissubdivision. The financial statements shall be prepared in conformity withgenerally accepted accounting principles. If the date of the audit report ismore than 120 days before the date of the initial issuance of the securitiesdescribed in this subdivision, the issuer shall provide unaudited interimfinancial statements;

f.          The names of alldirectors, officers, partners, members, or trustees of the issuer;

g.         A description of anyorder, judgment, or decree that is final as to the issuing entity of any state,federal, or foreign governmental agency or administrator, or of any state,federal, or foreign court of competent jurisdiction (i) revoking, suspending,denying, or censuring, for cause, any license, permit, or other authority ofthe issuer or of any director, officer, partner, member, trustee, or personowning or controlling, directly or indirectly ten percent (10%) or more of theoutstanding interest or equity securities of the issuer, to engage in thesecurities, commodities, franchise, insurance, real estate, or lending businessor in the offer or sale of securities, commodities, franchises, insurance, realestate, or loans, (ii) permanently restraining, enjoining, barring, suspending,or censuring any such person from engaging in or continuing any conduct,practice, or employment in connection with the offer or sale of securities,commodities, franchises, insurance, real estate, or loans, (iii) convicting anysuch person of, or pleading nolo contendere by any such person to, any felonyor misdemeanor involving a security, commodity, franchise, insurance, realestate, or loan, or any aspect of the securities, commodities, franchise,insurance, real estate, or lending business, or involving dishonesty, fraud,deceit, embezzlement, fraudulent conversion, or misappropriation of property,or (iv) holding any such person liable in a civil action involving breach of afiduciary duty, fraud, deceit, embezzlement, fraudulent conversion, ormisappropriation of property. This subdivision does not apply to any order,judgment, or decree that has been vacated or overturned or is more than 10years old;

h.         Notice of thepurchaser's right to rescind or cancel the investment and receive a refund;

i.          A statement to theeffect that any projected rate of return to the purchaser from the purchase ofa viatical settlement contract or any fractionalized or pooled interest thereinis based on an estimated life expectancy for the person insured under the lifeinsurance policy; that the return on the purchase may vary substantially fromthe expected rate of return based upon the actual life expectancy of theinsured that may be less than, may be equal to, or may greatly exceed theestimated life expectancy; and that the rate of return would be higher if theactual life expectancy were less than, and lower if the actual life expectancywere greater than, the estimated life expectancy of the insured at the time theviatical settlement contract was closed;

j.          A statement thatthe purchaser should consult with his or her tax advisor regarding the taxconsequences of the purchase of the viatical settlement contract or anyfractionalized or pooled interest therein; and

k.         Any otherinformation as may be prescribed by rule or order of the Administrator.

(2)        Disclosures prior toclosing. – At least five business days prior to the date the purchase agreementis signed, the viatical settlement purchaser shall receive the followingwritten disclosures:

a.         The name, address,and telephone number of the issuing insurance company and the name, address,and telephone number of the state or foreign country regulator of the insurancecompany;

b.         The total face valueof the insurance policy and the percentage of the insurance policy thepurchaser will own;

c.         The insurance policynumber, issue date, and type;

d.         If a group insurancepolicy, the name, address, and telephone number of the group and, ifapplicable, the material terms and conditions of converting the policy to anindividual policy, including the amount of increased premiums;

e.         If a term insurancepolicy, the term and the name, address, and telephone number of the person whowill be responsible for renewing the policy if necessary;

f.          Whether theinsurance policy is beyond the state statute for contestability and the reasontherefor;

g.         The insurance policypremiums and terms of premium payments;

h.         The amount of thepurchaser's money that will be set aside to pay premiums;

i.          The name, address,and telephone number of the person who will be the insurance policy owner andthe person who will be responsible for paying premiums;

j.          The date on whichthe purchaser will be required to pay premiums and the amount of the premium,if known;

k.         A statement of riskfactors associated with investment in viatical settlement contracts, including,but not limited, to the following:

1.         The purchaser willreceive no returns (i.e., dividends and interest) until the insured dies.

2.         The actual annualrate of return on a viatical settlement contract is dependent upon an accurateprojection of the insured's life expectancy, and the actual date of theinsured's death. An annual "guaranteed" rate of return is notdeterminable.

3.         The viaticated lifeinsurance contract should not be considered a liquid purchase since it isimpossible to predict the exact timing of its maturity and the funds probablyare not available until the death of the insured. There is no establishedsecondary market for resale of these products by the purchaser.

4.         The purchaser maylose all benefits or may receive substantially reduced benefits if the insurergoes out of business during the term of the viatical investment.

5.         The purchaser isresponsible for payment of the insurance premium or other costs related to thepolicy, if required by the terms of the viatical purchase agreement. Thesepayments may reduce the purchaser's return. If a party other than the purchaseris responsible for the payment, the name and address of that party also shallbe disclosed.

6.         If the purchaser isresponsible for payment of the insurance premiums or other costs related to thepolicy or if the insured returns to health, the amount of the premiums, if applicable.

7.         The name and addressof any person providing escrow services and the relationship to the issuer.

8.         The amount of anytrust fees or other expenses to be charged to the viatical settlement purchasershall be disclosed.

9.         Whether thepurchaser is entitled to a refund of all or part of his or her investment underthe settlement contract if the policy is later determined to be null and void.

10.       A disclosure thatgroup policies may contain limitations or caps in the conversion rights; thatadditional premiums may have to be paid if the policy is converted; the name ofthe party responsible for the payment of the additional premiums; and, if agroup policy is terminated and replaced by another group policy, that there maybe no right to convert the original coverage.

11.       A disclosure of therisks associated with policy contestability including, but not limited to, therisk that the purchaser will have no claim or only a partial claim to deathbenefits should the insurer rescind the policy within the contestabilityperiod.

12.       A disclosure ofwhether the purchaser will be the owner of the policy in addition to being thebeneficiary, and if the purchaser is the beneficiary only and not also theowner, the special risks associated with that status, including, but notlimited to, the risk that the beneficiary may be changed or the premium may notbe paid.

13.       The experience andqualifications of the person who determines the life expectancy of the insured,i.e., in‑house staff, independent physicians, and specialty firms thatweigh medical and actuarial data; the information this projection is based on;and the relationship of the projection maker to the viatical settlementprovider, if any.

14.       Disclosure to aninvestor shall include distribution of a brochure describing the process ofinvestment in viatical settlements. The NAIC's form for the brochure shall beused unless the Administrator prescribes one by rule or order.

l.          Any otherinformation as may be prescribed by rule or order of the Administrator.

(b)        DisclosuresRequired Upon Assignment or Sale of Underlying Insurance Policy. – The issuershall provide the viatical settlement purchaser with at least the followingdisclosures no later than at the time of the assignment, transfer, or sale ofall or a portion of an insurance policy underlying the viatical settlementcontract, and the disclosure shall be contained in a document signed by theviatical settlement purchaser and by the issuer or its sales agent:

(1)        Disclose all thelife expectancy certifications obtained by the provider in the process ofdetermining the price paid to the viator.

(2)        State whetherpremium payments or other costs related to the policy have been escrowed. Ifescrowed, state the date upon which the escrowed funds will be depleted;whether the purchaser will be responsible for payment of premiums thereafterand, if so, the amount of the premiums; and the name and address of the escrowagent.

(3)        State whetherpremium payments or other costs related to the policy have been waived. Ifwaived, disclose whether the investor will be responsible for payment of thepremiums if the insurer that wrote the policy terminates the waiver afterpurchase and the amount of those premiums.

(4)        Disclose the type ofpolicy offered or sold, i.e., whole life, term life, universal life, or a grouppolicy certificate, any additional benefits contained in the policy, and thecurrent status of the policy.

(5)        If the policy isterm insurance, disclose the special risks associated with term insuranceincluding, but not limited to, the purchaser's responsibility for additionalpremiums if the viator continues the term policy at the end of the currentterm.

(6)        State whether thepolicy is contestable.

(7)        State whether theinsurer that wrote the policy has any additional rights that could negativelyaffect or extinguish the purchaser's rights under the viatical settlementcontract, what these rights are, and under what conditions these rights areactivated.

(8)        State the name andaddress of the person responsible for monitoring the insured's condition.Describe how often the monitoring of the insured's condition is done, how thedate of death is determined, and how and when this information will betransmitted to the purchaser.(2001‑436, s. 7.)