Critically needed legislation sponsored by New York State Senator Neil D. Breslin (D-Delmar), has been signed into law by Governor David A. Paterson. This legislation regulates the billion dollar life settlement market in New York ensuring that, among other things, the medical and financial information of those who enter into a life settlement transaction is protected.

The life settlement industry began in the late 1970’s and 1980’s when, during the AIDS epidemic, many seriously ill individuals with life insurance policies sold their policies to pay for medical care, experimental medical treatments or other essential needs. In 1994, Article 78 of the Insurance Law was enacted to regulate transactions where an insured with a catastrophic or life-threatening illness or condition sold his or her life insurance policy.

Recently a new life settlement market has developed, wherein owners of life insurance policies where the insureds do not have a life-threatening illness are selling their policies. The insured individuals generally are senior citizens who may no longer want or need their policy and who are able to obtain a monetary benefit greater than the cash surrender value but less than the death benefit of the policy by selling their policy to a “life settlement provider”. The life settlement provider often then resells the policy to third party investors. Until now, these transactions, which fall outside of the scope of Article 78 of the Insurance Law, have been unregulated. This law will regulate these life settlement transactions.

The legislation contain numerous disclosure and consumer protection provisions ensuring that an owner considering selling his or her policy makes an informed decision. The owner of the policy and the individual insured are now required under the policy to consent to the release of medical and other personal information. In addition, life settlement companies and investors must keep any personal information received as part of the transaction confidential.

Consumers will specifically be protected from the previous practice of stranger-originated life insurance (STOLI), a type of illegitimate life settlement that has become prevalent over the last few years. In a STOLI transaction, life settlement companies and investors target individuals, typically senior citizens, to purchase a large face amount life insurance policy for the sole purpose of selling the policy within a very short period of time.

“I was pleased to play a central role in crafting this landmark consumer protection legislation which brings much needed regulation to the growing life settlement industry”, said Breslin. “This legislation contains numerous disclosure and consumer protection provisions which will help to ensure that an owner considering selling his or her policy makes an informed decision. The legislation will also protect the medical and other personal information of those who enter into a life settlement transaction. In addition, this legislation specifically outlaws certain improper and abusive practices currently happening in the life settlement industry.”

Found here.