Washington State Department of Financial Institutions

Frequently Asked Questions by Insurance Agents

Q. What are viatical settlements?

A. A viatical settlement is an investment contract pursuant to which an investor acquires an interest in the life insurance policy of a terminally ill person - typically an AIDS victim - at a discount of 20 percent or more, depending upon the insured's life expectancy. When the insured dies, the investor receives the proceeds of the insurance policy. The investor's profit is the difference between the discounted purchase price paid to the insured and the death benefit collected from the insurer, less transaction costs, premiums paid, and other administrative expenses.

Q. Are viatical settlements considered to be securities?

A. The Washington Securities Division examines all viatical settlement investments on a case-by-case basis. It has been our experience that these investments are often securities under the Securities Act of Washington.

Q. How do I determine whether the particular viatical settlements that I am selling constitute securities?

A. Whether or not a particular viatical investment constitutes a security depends on whether the investment is a passive investment whereby the investor is expecting to receive profits that is derived primarily from the efforts of a party or parties other than the investor.

You are recommended to consult with your own legal counsel or a securities attorney so that the investment can be reviewed for compliance with state securities laws. The Securities Division cannot act as your legal counsel nor may it provide you with legal advice.

We also recommend that you contact the viatical settlement company you are dealing with and have them contact us. We will work with the viatical settlement company to determine what issues need to be considered in determining whether they are in compliance with state securities laws.

Q. Didn't the Life Partners case hold that viatical settlements are not securities?

A. The Life Partners case held that the particular viatical settlement investments at issue in that case were not securities. However, state securities regulators are not bound by the Life Partners decision.

Q. How do I comply with Washington securities law?

A. If you have offered, or are considering offering, particular viatical settlement investments that constitute securities, the investments must be registered with the Washington Securities Division or have an exemption from registration. Registration and exemption information can be found at: http://www.dfi.wa.gov/sd/securities.html and questions regarding registration or exemption filing requirements may be directed to bbeatty@dfi.wa.gov

B. Moreover, the sales agent acting on behalf of the viatical settlement company must be licensed as a securities salesperson. Information regarding salesperson registration can be found at: http://www.dfi.wa.gov/sd/bd.html and questions regarding license filing requirements may be directed to bjohnson@dfi.wa.gov

Q. Which viatical settlement companies are registered with your Division?

A. Currently, there are no viatical settlement companies that are registered to sell viatical settlement investments in the state of Washington.

Q. What are the penalties or sanctions for selling securities without a license?

A. You as the seller would be subject to administrative and civil liabilities. In addition, if you were found to have made a knowing violation of the Securities Act of Washington, you could be subject to criminal liability.

Q. What types of misrepresentations, omissions, or fraud in connection with viatical settlements have been identified?

A. The Washington Securities Division has identified instances where it appears that sales agents are misrepresenting or failing to disclose material information, including, but not limited to:

  1. The policy to be assigned to the investor was fraudulent obtained by the insured, whereby the insured misrepresented his/her health condition by concealing his or her terminally illness;

  2. The risk of the insured living much longer than his or her estimated life expectancy, thereby greatly reducing the investor's annual yield;

  3. The risk of the viatical settlement company and/or the insurer becoming insolvent;

  4. The risk of the assigned life insurance policy lapsing;

  5. The source of the funds to pay the premiums on the policies assigned to investors;

  6. The financial condition and financial statements of the viatical settlement company;

  7. The sales commission the sales agent receives;

  8. The percentage of the investor's funds the viator actually receives as a result of viaticating the insured's policy;

  9. The identity of the party having the responsibility of monitoring the whereabouts and health status of the insured, obtaining a death certificate upon the insured's death, and making a death benefits claim to the insurer.

Q. What is "selling away"?

A. If you are a licensed securities salesperson and employed by a broker-dealer, you must have the permission of your broker-dealer to sell any security. If you are selling any security (including viatical settlements) not approved for sale by your broker-dealer, you are "selling away" in violation of the securities regulations relating to dishonest and unethical business practices by a salesperson.

Q. How do I determine if viatical settlements are suitable investments for a particular investor?

A. To make the determination of whether viatical settlements are suitable investments for a particular investor, the seller must take into consideration the particular investor's age, financial situation and investment objectives.

Q. Does the Washington Insurance Commissioner's Office regulate viatical settlements?

A. Yes, the Viatical Settlements Act was codified in 1995 (RCW 48.102) and grants the Insurance Commissioner authority to regulate viatical settlement brokers, providers, and the contracts between the providers and viators that are entered into in Washington. However, most of the provisions in the Act are intended to protect the viator's interests, and does not provide protection for the investor.