Key Points in This Section
- LISA (Life Insurance Settlement Association), founded in 1994, is the nation’s oldest and largest trade organization for the life settlement industry, with over 65 member companies; members must annually attest to compliance with a Code of Ethics and Standards of Professional Conduct
- The NAIC has been instrumental in developing model legislation that most states have adopted in some form, most importantly the revised Viatical Settlements Model Act (2007) addressing STOLI and strengthening consumer protections
- FINRA (formerly NASD) has issued guidance reminding broker-dealers of their obligations when customers seek to sell policies through the secondary market, and published investor education materials warning of STOLI-related schemes
- The life insurance industry — through organizations including AALU and the American Council of Life Insurers (ACLI) — has actively opposed STOLI while generally supporting legitimate life settlements as a consumer right
- Self-regulation complements but does not replace state licensing requirements — agents and brokers should verify that all settlement companies they work with hold current licenses in the relevant state
Industry Self-Regulation
In addition to government regulation, several industry organizations have developed their own codes of conduct, standards, and model legislation to promote ethical behavior and consumer protection in the life settlement market. These self-regulatory efforts are particularly important in a market that, while growing, still operates with variable levels of awareness among consumers and advisors.
Life Insurance Settlement Association (LISA)
Life Insurance Settlement Association (LISA)
Founded 1994 — Nation’s Oldest & Largest Trade OrganizationLISA is the nation’s oldest and largest organization representing participants in the life settlement industry. LISA’s mission is to promote the development, integrity, and reputation of the life settlement industry, advance the highest standards of practice and professional development, and educate consumers and advisors about life settlements as an alternative to the lapse or surrender of a life insurance policy.
LISA’s membership includes brokers, providers, financing entities, law firms, medical underwriters, actuarial firms, trustees, and escrow agents. Members of the Association are required to annually attest to abiding by a Code of Ethics and Standards of Professional Conduct, including all appropriate laws and regulations.
LISA’s Code of Ethics requires member firms to:
- Disclose all material information to viators, including all offers received and the basis for any recommendation
- Refrain from misrepresenting life expectancies or projected investment returns
- Maintain the confidentiality of viator and insured personal and medical information
- Comply with all applicable state licensing requirements
- Avoid STOLI arrangements and other practices that circumvent insurable interest laws
- Place viator interests first in all settlement negotiations
LISA also publishes annual market data, conducts industry conferences, and advocates for sensible regulatory frameworks that protect consumers while preserving the legitimate secondary market.
National Association of Insurance Commissioners (NAIC)
National Association of Insurance Commissioners (NAIC)
Model Legislation & Regulatory GuidanceThe NAIC has been the primary source of model legislation for the life settlement market. Its Viatical Settlements Model Act (Model #697) has been adopted in various forms by most states. The 2007 revision significantly strengthened consumer protections and addressed STOLI by:
- Imposing a 5-year restriction on settling policies that exhibit STOLI indicators (with exceptions for genuine life changes)
- Requiring enhanced disclosures by brokers and providers, including disclosure of all offers and the broker’s compensation as a percentage of the settlement amount
- Requiring a $250,000 surety bond or equivalent financial responsibility demonstration by licensed providers and brokers
- Mandating biennial continuing education (15 hours) for licensed viatical settlement brokers
- Registering life expectancy providers to prevent manipulation of medical underwriting
The NAIC continues to monitor developments in the life settlement market and coordinates with state regulators on enforcement actions and policy updates.
FINRA
FINRA (Financial Industry Regulatory Authority)
Formerly NASD — Reorganized 2007FINRA (formed in 2007 through the consolidation of NASD and the regulatory functions of the New York Stock Exchange) oversees broker-dealers and their registered representatives. FINRA’s involvement in the life settlement market arises when settlement interests are offered or recommended as investment products to brokerage customers.
FINRA has:
- Issued notices reminding broker-dealers of their suitability obligations when customers seek to sell life insurance policies through the secondary market
- Published investor alerts warning the public about STOLI schemes, fraudulent settlement investments, and misrepresented life expectancy projections
- Clarified that registered representatives who recommend life settlement transactions must ensure those recommendations are suitable for the customer
The Life Insurance Industry
Life Insurance Industry Organizations
AALU • ACLI • Individual InsurersThe life insurance industry has taken a nuanced position on the secondary market. While generally supporting policyowners’ legal right to sell their policies — a right affirmed by the U.S. Supreme Court in Grigsby v. Russell (1911) — insurers have been vocal opponents of STOLI and premium finance arrangements designed to circumvent insurable interest laws.
The Association for Advanced Life Underwriting (AALU) and the American Council of Life Insurers (ACLI) have both advocated for strong STOLI prohibition while acknowledging that legitimate life settlements are a consumer right that should not be impeded. Individual insurers have:
- Enhanced underwriting scrutiny for large policies issued to older applicants to detect potential STOLI at the policy origination stage
- Added questions to applications specifically addressing premium financing arrangements and intent to sell the policy
- Actively contested policies in court that were determined to have been issued as STOLI arrangements
- Worked with state regulators to share information about suspicious policy patterns
Courts have generally supported insurers in voiding STOLI policies as contrary to public policy — including landmark decisions in Delaware (PHL Variable Insurance Co. v. Price Dawe) and New Jersey, where the state Supreme Court ruled STOLI policies void from inception.