Key Points in This Section
- Brokers must disclose to viators: all offers received, the broker’s compensation as a percentage of the offer, any affiliations with providers, and all material information affecting the transaction
- Providers must disclose: the full purchase price, future premium obligations assumed, the insured’s right to rescind, and potential tax and benefit eligibility consequences
- Medical and personal information about the insured is highly confidential — brokers and providers may only use it for legitimate settlement purposes and must protect it from unauthorized disclosure
- HIPAA’s Privacy Rule (45 CFR Part 164) governs the use and disclosure of protected health information (PHI); the insured must provide written authorization before medical records are shared
- Settlement advertising must be truthful and not misleading — using terms like “guaranteed” to describe investment returns on settlement interests is prohibited
- Brokers and providers must maintain records of all settlement transactions — including all offers and disclosures — for at least 5 years under Florida law
Disclosure
Required Disclosures by Brokers
The viatical settlement broker, as the representative of the viator, has comprehensive disclosure obligations. The NAIC’s revised Viatical Settlements Model Act (2007) and Florida’s Viatical Settlement Act (Chapter 626, Part X, F.S.) require brokers to disclose the following to viators before or at the time the settlement contract is executed:
- All offers received from settlement providers — not just the highest or the one the broker recommends
- The total compensation to be received by the broker, including the percentage of the settlement offer that constitutes the broker’s fee
- Any affiliations or contractual arrangements between the broker and any provider making an offer, including any ownership interest the broker holds in a provider
- That the viator has the right to rescind the contract within 15 days of execution (Florida) without penalty
- That the settlement proceeds may be taxable and that the viator should consult a tax advisor
- That the settlement could affect eligibility for Medicaid or other government benefits
- The name and address of the escrow agent who will hold the settlement funds
Required Disclosures by Providers
Viatical settlement providers also have mandatory disclosure obligations to the viator at the time of the settlement:
- The total purchase price to be paid for the policy
- Any future premium payments the provider will be required to make to keep the policy in force
- The insured’s right to rescind within the applicable rescission period
- That the provider intends to monitor the insured’s health status periodically and the frequency and method of such monitoring
- That the insured’s personal and medical information will be kept strictly confidential and used only for legitimate settlement purposes
- The potential tax consequences of the transaction and the recommendation to seek independent tax advice
Privacy — Protection of Medical Information
The settlement process necessarily involves the collection, review, and exchange of the insured’s personal medical records — among the most sensitive personal information that exists. Both state and federal law impose strict requirements governing the use and disclosure of this information.
Written authorization required: Before any medical records can be requested or shared, the insured must provide written authorization. The authorization must specify what records may be obtained, who may receive them, and the purpose for which they will be used. The insured may revoke this authorization at any time before the records are released.
HIPAA Privacy Rule: The Health Insurance Portability and Accountability Act’s Privacy Rule (45 CFR Part 164) establishes federal standards for the protection of protected health information (PHI). While the Privacy Rule primarily applies to covered entities (health care providers, health plans, and clearinghouses), settlement companies that receive PHI must handle it in accordance with the authorization given and applicable state law. Unauthorized disclosure of PHI can result in both civil and criminal penalties.
Minimum necessary standard: Only the medical information necessary to evaluate the policy may be requested or shared. Settlement companies may not collect medical records beyond what is required to assess the insured’s life expectancy and the settlement’s pricing.
Prohibition on secondary use: Medical information collected in connection with a settlement may not be used for any purpose other than the settlement transaction itself. Using an insured’s medical information for marketing, solicitation, or any other purpose is prohibited.
Advertising Standards
Settlement companies and brokers that advertise their services to consumers must ensure that all advertising and marketing materials are truthful, accurate, and not misleading. Specific prohibitions include:
- Using the word “guaranteed” to describe investment returns on viatical settlement interests — since actual returns depend on the insured’s actual life expectancy, no return can be guaranteed
- Misrepresenting the tax treatment of settlement proceeds (e.g., claiming senior settlement proceeds are tax-free when they are generally partially taxable)
- Making false or exaggerated claims about the size of settlement proceeds a viator can expect to receive
- Using testimonials or endorsements that do not reflect the typical experience of settlement clients
- Advertising “free insurance” arrangements as a consumer benefit when they are in fact STOLI schemes
The FTC’s general prohibition on deceptive advertising applies to settlement marketing materials, as does Florida’s Unfair Insurance Trade Practices Act. Violations can result in regulatory sanctions, license suspension, and civil liability.