304.15-020 Definitions.
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"Advertisement" means any written, electronic, or printed communication or any
communication by means of recorded telephone messages or transmitted on radio,
television, the Internet, or similar communication media, including film strips,
motion pictures, and videos, published, disseminated, circulated, or placed directly
before the public, for the purpose of creating an interest in or inducing a person to
purchase or sell, assign, devise, bequest, or transfer the death benefit or ownership
of a life insurance policy or an interest in a life insurance policy pursuant to a life
settlement contract.
"Business of life settlements" means an activity involved in but not limited to the
offering, solicitation, negotiation, procurement, effectuation, purchasing, investing,
financing, monitoring, tracking, underwriting, selling, transferring, assigning,
pledging, hypothecating, or in any other manner, of life settlement contracts.
"Chronically ill" means:
(a) Being unable to perform at least two (2) activities of daily living, including
but not limited to eating, toileting, transferring, bathing, dressing, or
continence;
(b) Requiring substantial supervision to protect the individual from threats to
health and safety due to severe cognitive impairment; or
(c) Having a level of disability similar to that described in paragraph (a) of this
subsection as determined by the Secretary of Health and Human Services.
"College life insurance" is that form of life insurance sold to college students, the
initial premiums for which are financed by a promissory note.
"Financing entity" means an underwriter, placement agent, lender, purchaser of
securities, purchaser of a policy from a life settlement provider, credit enhancer, or
any entity that has a direct ownership in a policy that is the subject of a life
settlement contract but:
(a) Whose principal activity related to the transaction is providing funds to effect
the life settlement contract or purchase of one (1) or more policies or to
provide credit enhancement; and
(b) Who has an agreement in writing with one (1) or more licensed life settlement
providers to finance the acquisition of life settlement contracts or to provide
stop loss insurance.
"Financing entity" does not include a nonaccredited investor or purchaser.
"Financing transaction" means a transaction in which a life settlement provider
obtains financing from a financing entity, including without limitation any secured
or unsecured financing, any securitization transaction, or any securities offering
which either is registered or exempt from registration under federal and state
securities law.
"Fraudulent life settlement act" includes:
(a) Acts or omissions committed by any person who, knowingly or with intent to
defraud, for the purpose of depriving another of property or for pecuniary
(b)
gain, commits or permits his employees or its agents to engage in acts
including:
1.
Presenting, causing to be presented, or preparing with knowledge or
belief that it will be presented to or by a life settlement provider, life
settlement broker, life insurance producer, financing entity, insurer,
premium finance lender, or any other person, false material information,
or concealing material information, as part of, in support of, or
concerning a fact material to one (1) or more of the following:
a.
An application for the issuance of a life settlement contract or
policy;
b.
The underwriting of a life settlement contract or policy;
c.
A claim for payment or benefit pursuant to a life settlement
contract or policy;
d.
Premiums paid on a policy;
e.
Payments and changes in ownership or beneficiary made in
accordance with the terms of a life settlement contract or policy;
f.
The reinstatement or conversion of a policy;
g.
In the solicitation, offer, effectuation, or sale of a life settlement
contract or policy;
h.
The issuance of written evidence of a life settlement contract or
policy;
i.
A financing transaction;
j.
Any application for or the existence of or any payments related to a
loan secured directly or indirectly by any interest in a life insurance
policy; or
k.
Stranger-originated life insurance;
2.
Employing any device, scheme, or artifice to defraud related to policies
acquired pursuant to a life settlement contract;
3.
In the solicitation, application, or issuance of a life insurance policy,
employing any device, scheme, or artifice in violation of state insurable
interest laws;
Any of the following acts committed by any person or permitted by a person
to be committed by the person's employees or agents in the furtherance of a
fraud or to prevent detection of a fraud to:
1.
Remove, conceal, alter, destroy, or sequester from the commissioner the
assets or records of a licensee or other person engaged in the business of
life settlements;
2.
Misrepresent or conceal the financial condition of a licensee, financing
entity, insurer, or other person;
3.
Transact the business of life settlements in violation of laws requiring a
license, certificate of authority, or other legal authority for the
transaction of the business of life settlements;
4.
File with the commissioner or the chief insurance regulatory official of
another jurisdiction a document containing false information or which
otherwise conceals information about a material fact from the
commissioner; or
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Misrepresent the state of residence of an owner to be a state or
jurisdiction that does not have a law substantially similar to this section
and KRS 304.15-700 to 304.15-720;
(c) Embezzlement, theft, misappropriation, or conversion of moneys, funds,
premiums, credits, or other property of a life settlement provider, life
settlement broker, insurer, insured, owner, insurance policyowner, or any
other person engaged in the business of life settlements or insurance;
(d) Recklessly entering into, brokering, or otherwise dealing in a life settlement
contract, the subject of which is a policy that was obtained by presenting false
information concerning any fact material to the policy or by concealing, for
the purpose of misleading another, information concerning any fact material to
the policy, where the owner or the owner's agent intended to defraud the
policy issuer. For the purposes of this paragraph, "recklessly" means engaging
in the conduct in conscious and clearly unjustifiable disregard of a substantial
likelihood of the existence of the relevant facts or risks, such disregard
involving a gross deviation from acceptable standards of conduct; or
(e) Attempting to commit, assisting, aiding, or abetting in the commission of, or
conspiracy to commit the acts or omissions specified in this subsection.
(8) "Industrial life insurance" is that form of life insurance written under policies of
face amount of ,000 or less issued on the basis of an industrial mortality table,
and under which premiums are payable monthly or more often.
(9) "Life expectancy" means the number of months the insured under the life insurance
policy to be settled can be expected to live considering medical records and
appropriate experiential data.
(10) "Premium finance loan" means a loan made primarily for the purposes of making
premium payments on a life insurance policy, which loan is secured by an interest in
such life insurance policy.
(11) "Purchaser" means a person who pays compensation or anything of value as
consideration for a beneficial interest in a trust which is vested with, or for the
assignment, transfer, or sale of, an ownership or other interest in a life insurance
policy or certificate issued pursuant to a group life insurance policy which has been
the subject of a life settlement contract.
(12) "Related provider trust" means a titling trust or other trust established by a licensed
life settlement provider or financing entity for the sole purpose of holding the
ownership or beneficial interest in policies. The trust shall have a written agreement
with the licensed life settlement provider under which the licensed life settlement
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provider is responsible for ensuring compliance with all statutory and regulatory
requirements and under which the trust agrees to make all records and files related
to life settlement transactions available to the commissioner as if those records and
files were maintained directly by the licensed life settlement provider.
"Settled policy" means a life insurance policy or certificate that has been acquired
by a life settlement provider pursuant to a life settlement contract.
"Special purpose entity" means a corporation, partnership, trust, limited liability
company, or other similar entity formed solely to provide, either directly or
indirectly, access to institutional capital markets for a financing entity or licensed
life settlement provider.
"Stranger-originated life insurance" or "STOLI" means the procurement of new life
insurance by persons or entities that lack insurable interest on the insured and, at
policy inception, such person or entity owns or controls, or has an arrangement or
agreement to own or control, the policy or the majority of the death benefit in the
policy and the insured or insured's beneficiaries receive little or none of the
proceeds of the death benefits of the policy. Trusts that are created to give the
appearance of insurable interest and are used to initiate policies for investors violate
insurable interest laws and the prohibition against wagering on life. STOLI
arrangements do not include those practices set forth in paragraph (b) of subsection
(17) of this section.
"Life settlement broker" or "broker" means an individual, partnership, corporation,
or other person who is working exclusively on behalf of an owner and for a fee,
commission, or other valuable consideration, offers or advertises the availability of
life settlements, introduces an owner to life settlement providers, or offers or
attempts to negotiate life settlements between an owner and one (1) or more life
settlement providers. "Life settlement broker" does not include an attorney, certified
public accountant, or financial planner who is retained to represent the owner and
whose compensation is not paid directly or indirectly by the life settlement provider
or any other person except the owner.
(a) "Life settlement contract" means a written agreement entered into between a
life settlement provider and an owner owning a policy or who owns or is
covered under a group policy insuring the life of a person and the agreement
establishes the terms under which the life settlement provider will pay
compensation or anything of value, which compensation or value is less than
the expected death benefit of the insurance policy or certificate, in return for
the owner's assignment, transfer, sale, devise or bequest of the death benefit or
ownership of any portion of the insurance policy or certificate. A life
settlement contract also includes a contract for a loan or other financing
transaction with an owner secured primarily by an individual or group life
insurance policy, other than a loan by a life insurance company pursuant to the
terms of the life insurance contract, or a loan secured by the cash value of a
policy. A life settlement contract includes an agreement with an owner to
transfer ownership or change the beneficiary designation of a policy at a later
date regardless of the date that compensation is paid to the owner. "Life
(b)
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settlement contract" does not mean a written agreement entered into between
an owner and a person having an insurable interest in the insured's life.
"Life settlement contract" also includes a premium finance loan made for a
policy on or before the date of issuance of the policy where:
1.
The loan proceeds are not used solely to pay premiums for the
policy and any costs or expenses incurred by the lender or the
borrower in connection with the financing;
2.
The owner receives on the date of the premium finance loan a
guarantee of the future life settlement value of the policy; or
3.
The owner agrees on the date of the premium finance loan to sell
the policy or any portion of its death benefit on any date following
the issuance of the policy.
"Life settlement contract" does not include:
1.
A policy loan by a life insurance company pursuant to the terms of the
life insurance policy or accelerated death provisions contained in the life
insurance policy, whether issued with the original policy or as a rider;
2.
A premium finance loan or any loan made by a bank or other licensed
financial institution, provided that neither default on such loan nor the
transfer of the policy in connection with such default is pursuant to an
agreement or understanding with any other person for the purpose of
evading regulation under KRS 304.15-700 to 304.15-720;
3.
A collateral assignment of a life insurance policy by an owner;
4.
A loan made by a lender that does not violate Subtitle 30 of this chapter,
if the loan is not described in paragraph (b) of this subsection and is not
otherwise within the definition of life settlement contract;
5.
An agreement where all the parties are closely related to the insured by
blood or law or have a lawful substantial economic interest in the
continued life, health, and bodily safety of the person insured, or are
trusts established primarily for the benefit of such parties;
6.
Any designation, consent, or agreement by an insured who is an
employee of an employer in connection with the purchase by the
employer, or trust established by the employer, of life insurance on the
life of the employee;
7.
A bona fide business succession planning arrangement:
a.
Between one (1) or more shareholders in a corporation or between
a corporation and one (1) or more of its shareholders or one (1) or
more trust established by its shareholders;
b.
Between one (1) or more partners in a partnership or between a
partnership and one (1) or more of its partners or one (1) or more
trust established by its partners; or
c.
Between one (1) or more members in a limited liability company
or between a limited liability company and one (1) or more of its
members or one (1) or more trust established by its members;
8.
An agreement entered into by a service recipient, or a trust established
by the service recipient, and a service provider, or a trust established by
the service provider, who performs significant services for the service
recipient’s trade or business; or
9.
Any other contract, transaction, or arrangement not included in the
definition of life settlement contract as determined by the commissioner
by administrative regulation.
(18) "Life settlement provider" or "provider" means an individual, partnership,
corporation, or other person who or that enters into an agreement with a person
owning a policy under the terms of which the life settlement provider pays
compensation or anything of value, which compensation or value is less than the
expected death benefit of the insurance policy or certificate, in return for the
policyowner's assignment, transfer, sale, devise, or bequest of the death benefit or
ownership of the policy to the life settlement provider. Life settlement provider does
not include:
(a) Any bank, savings bank, savings and loan association, credit union, or other
licensed lending institution or creditor or secured party that takes an
assignment of a policy as collateral for a loan;
(b) The issuer of a policy that provides accelerated benefits that accelerate in
anticipation of death or upon the occurrence of specified life-threatening or
catastrophic conditions as defined by the policy or rider;
(c) Any natural person who is not licensed in accordance with KRS 304.15-700
and who enters into no more than one (1) agreement in a calendar year for the
transfer of life insurance policies for any value less than the expected death
benefit;
(d) A related provider trust;
(e) An authorized or eligible insurer that provides stop-loss coverage to a life
settlement provider, financing entity, special purpose entity, or related
provider trust;
(f) A special purpose entity;
(g) A related provider trust;
(h) An accredited investor or qualified institutional buyer as defined respectively
in Regulation D, Rule 501 or Rule 144A of the Federal Securities Act of
1933, as amended, and who acquires a policy from a life settlement provider;
(i) A purchaser;
(j) A financing entity; or
(k) Broker.
(19) "Owner" means a resident of this Commonwealth who is the owner of a policy or a
certificate holder under a group policy who enters or seeks to enter into a life
settlement contract. An owner shall not be limited to an owner of a life insurance
policy or a certificate holder under a group policy insuring the life of an individual
with a terminal or chronic illness or condition except where specifically addressed.
If there is more than one (1) owner on a single policy and the owners are residents
of different states, the transaction shall be governed by the law of the state in which
the owner having the largest percentage of ownership resides or, if the owners hold
equal ownership, the state of residence of one (1) owner agreed upon in writing by
all owners. "Owner" does not include:
(a) A life settlement provider licensed pursuant to KRS 304.9-440;
(b) A qualified institutional buyer as defined in Rule 144A of the Federal
Securities Act of 1933, as amended;
(c) A financing entity;
(d) A special purpose entity; or
(e) A related provider trust.
(20) "Terminally ill" means having an illness or sickness that can reasonably be expected
to result in death in twenty-four (24) months or less.
(21) "Wholesale life insurance" is that plan of life insurance, other than salary savings
life insurance or pension trust insurance and annuities, under which individual
policies are issued to the employees of any employer and where policies are issued
on the lives of not less than four (4) employees at date of issue. Premiums for the
policies shall be paid either wholly from the employer's funds, or funds contributed
by him, or partly from the funds and partly from funds contributed by the insured
employees.
Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1175, effective July 15, 2010. -Amended 2008 Ky. Acts ch. 32, sec. 1, effective July 15, 2008. -- Amended 2005
Ky. Acts ch. 58, sec. 6, effective June 20, 2005. -- Amended 2000 Ky. Acts ch. 472,
sec. 1, effective July 14, 2000. -- Amended 1998 Ky. Acts ch. 403, sec. 1, effective
July 15, 1998. -- Amended 1976 Ky. Acts ch. 233, sec. 1, effective June 19, 1976. -Created 1970 Ky. Acts ch. 301, subtit. 15, sec. 2, effective June 18, 1970.
Legislative Research Commission Note (7/15/2008). The numbering of paragraphs in
subsection (17) of this statute has been altered by the Reviser of Statutes from that in
2008 Ky. Acts ch. 32, sec. 1, under the authority of KRS 7.136(1)(a).
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