Special Rules to Know Before Engaging a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Since a variable life insurance product is treated as a security, the settlement of a variable life insurance policy is subject to Financial Industry Regulatory Authority (FINRA) best practices standards that apply to broker-dealers and registered representatives. The five primary areas of concern that FINRA identified for its members engaging in settlements of variable life policies include: (1) suitability; (2) due diligence; (3) best execution; (4) training and supervision; and (5) compensation. As a result of these standards, most broker-dealers have developed suitability and due diligence questionnaires, disclosure forms, and standardized the amount of acceptable compensation for variable life insurance settlements. In addition, a principal of the broker-dealer will generally review each variable life settlement transaction to ensure that it is suitable for the client.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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