Citations Affected: IC 23-2; IC 27-1; IC 27-8.
Synopsis: Viatical settlement contract. Amends the definition of
"security" in the Indiana securities law to include viatical settlement
contracts or interests in viatical settlement contracts. Amends the life
insurance incontestability provisions to allow a policy that is part of a
viatical settlement contract to be contested for up to6 years from the
date of issue in the case of fraud in the application for life insurance
benefits under the policy. Amends the definition of "viatical settlement
contract" and excludes from the definition certain agreements and the
provision of accelerated benefits under a life insurance policy.
Effective: Upon passage.
January 10, 2000, read first time and referred to Committee on Insurance and Financial
January 24, 2000, amended, reported favorably _ Do Pass.
January 27, 2000, read second time, amended, ordered engrossed.
A BILL FOR AN ACT to amend the Indiana Code concerning
SECTION 1. IC 23-2-1-1 IS AMENDED TO READ AS FOLLOWS
[EFFECTIVE UPON PASSAGE]: Sec. 1. As used in this chapter,
unless the context otherwise requires:
(a) "Commissioner" means the securities commissioner provided for in
IC 23-2-1-15(a) section 15(a) of this chapter.
(b) "Agent" means an individual, other than a broker-dealer, who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. A partner, officer, or director of a broker-dealer or issuer or a person occupying a similar status or performing similar functions is an agent only if the person effects or attempts to effect a purchase or sale of securities in Indiana. "Agent" does not include an individual who represents an issuer in:
(1) effecting transactions in a security exempted by section 2(a)(1), 2(a)(2), 2(a)(3), 2(a)(6), 2(a)(7), or 2(a)(10) of this chapter;
(2) effecting transactions exempted by section 2(b) of this chapter;
person or persons performing the acts and assuming the duties of
depository or manager pursuant to the provisions of the trust or other
agreement or instrument under which the security is issued.
(g) "Nonissuer" means not directly or indirectly for the benefit of the issuer.
(h) "Person" means an individual, a corporation, a limited liability company, a partnership, an association, a joint-stock company, a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of a government.
(i)(1) "Sale" or "sell" means a contract of sale of, contract to sell, or disposition of, a security, or interest in a security for value.
(2) "Offer" or "offer to sell" means an attempt or offer to dispose of, or solicitation of an offer to purchase, a security, or interest in a security for value.
(3) "Transaction" and "transactions" include the meanings of "sale", "sell", "offer", "offer to sell", and "purchase".
(4) "Purchase" means an acquisition, direct or indirect, of a security or an interest in a security for value.
(5) A security given or delivered with, or as a bonus on account of, a purchase of securities or any other thing is considered to constitute part of the subject of the purchase and to have been offered and sold for value.
(6) A purported gift of assessable stock is considered to involve an offer and sale.
(7) A sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as a sale or offer of a security that gives the holder a present or future right or privilege to convert into another security of the same or another issuer, is considered to include an offer of the other security.
(8) The terms defined in this subsection do not include:
(i) a bona fide secured transaction in or loan of outstanding securities;
(ii) a stock dividend, whether the corporation distributing the dividend is the issuer of the stock or not, if nothing of value is given by the stockholders for the dividend other than the surrender of a right to a cash or property dividend when each stockholder may elect to take the dividend in cash or property or in stock; or
(iii) an act incident to a judicially approved reorganization in which a security is issued in exchange for one (1) or more outstanding securities, claims, or property interests, or partly in
such exchange and partly for cash.
(j) "Securities Act of 1933", "Securities Exchange Act of 1934", "Public Utility Holding Company Act of 1935", and "Investment Company Act of 1940" mean the federal statutes of those names, as in effect on December 31, 1990.
(k) "Security" means a note, stock, treasury stock, bond, debenture, evidence of indebtedness, an interest in a limited liability company or limited liability partnership and any class or series of an interest in a limited liability company or limited liability partnership (including any fractional or other interest in an interest in a limited liability company or limited liability partnership), certificate of interest or participation in a profit-sharing agreement, commodity futures contract, option, put, call, privilege, or other right to purchase or sell a commodity futures contract, margin accounts for the purchase of commodities or commodity futures contracts, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, viatical settlement contract, any fractional or pooled interest in a viatical settlement contract, voting-trust certificate, certificate of deposit for a security, certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under the title or lease, an automatic extension or rollover of an existing security, or, in general, an interest or instrument commonly known as a "security", or a certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant, option, or right to subscribe to or purchase, any of the foregoing. "Security" does not include:
(i) (1) an insurance or endowment policy or annuity contract
under which an insurance company promises to pay money either
in a lump sum or periodically for life or some other specified
(ii) (2) a contract or trust agreement under which money is paid
pursuant to a charitable remainder annuity trust or a charitable
remainder unitrust (described in Section 664 of the Internal
Revenue Code), or a pooled income fund (described in Section
642(c)(5) of the Internal Revenue Code) or an annuity contract
under which the purchaser receives a charitable contribution
deduction under Section 170 of the Internal Revenue Code; or
(iii) (3) an interest in a limited liability company or limited
liability partnership if the person claiming that the interest is not
a security can prove that all of the members of the limited liability
company or limited liability partnership are actively engaged in
the management of the limited liability company or limited
(l) "State" means a state, territory, or possession of the United States, the District of Columbia, and Puerto Rico.
(m) Corporations are "affiliated" during a period of time when either is the owner of shares of the other representing and possessing fifty percent (50%) or more of the total combined voting power of all classes of stock issued by the other corporation and then outstanding and entitled to vote.
(n) "Investment adviser" means a person who holds himself out to be an investment adviser, or who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as a part of a regular business, issues and promulgates analyses or reports concerning securities. "Investment adviser" does not include any of the following:
(1) A bank, savings institution, or trust company.
(2) A lawyer, an accountant, an engineer, or a teacher whose performance of these services is solely incidental to the practice of the person's profession.
(3) A broker-dealer or its agent whose performance of these services is solely incidental to the conduct of the broker-dealer's business as a broker-dealer and who receives no special compensation for them.
(4) A publisher of a bona fide newspaper, news column, newsletter, news magazine, or business or financial publication or service, by whatever means communicated, that does not render advice on the specific investment situation of individual clients.
(5) An investment adviser representative.
(6) A person who is an investment adviser to an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.).
(7) A person who is registered as an investment adviser under Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3).
(8) A person who is excluded from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2).
(9) Other persons the commissioner may by rule or order designate.
(o) "Transferable share" means a security representing an equity interest in a corporation or business trust, but does not include the
shares of open-end investment companies (as defined by the
Investment Company Act of 1940, as in effect on December 31, 1990).
(p) A "qualified transfer agent" means:
(1) a bank whose deposits are insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation; or
(2) a person, independent of the issuer, approved by the commissioner by regulation or by individual order in specific cases.
(q) "Investment adviser representative" means a person, except a person in a clerical or ministerial position:
(1) who is employed by or associated with an investment adviser registered under this chapter; or
(2) who has a place of business located in Indiana and is employed by or associated with a person required to be registered as an investment adviser under Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3); and
(A) makes recommendations or otherwise renders advice regarding securities;
(B) manages accounts or portfolios of clients;
(C) determines recommendations or advice that should be given regarding securities;
(D) solicits, offers, or negotiates the sale of or sells investment advisory services; or
(E) supervises employees who perform a duty described in this subsection.
(r) "Accredited investor" means a person who is within any of the following categories, or who the issuer reasonably believes is within any of the following categories, at the time of the sale of securities to the person:
(1) A person who meets the definition of "accredited investor" (as defined under the Securities Act of 1933 in 17 CFR 230.215), and in any other rule or regulation modifying the definition adopted by the Securities and Exchange Commission as in effect on December 31, 1990.
(2) A person to whom an offer or sale may be made without registration pursuant to section 2(b)(8) or 2(b)(9) of this chapter.
(3) Any other person the commissioner may designate by rule or order.
(s) "Federal covered security" refers to a security described as a covered security in Section 18(b) of the Securities Act of 1933 (15 U.S.C. 77r).
parties and shall:
(A) except as provided in clause (B), be incontestable after it shall have been in force during the lifetime of the insured for two (2) years from its date, or, at the option of the company after it shall have been in force for two (2) years from its date ; and
(B) in the event of fraud in connection with an application for life insurance benefits under a policy that is part of a viatical settlement contract (as defined in IC 27-8-19.8-6), be incontestable after the policy has been in force during the lifetime of the insured for six (6) years after the date of issue, or, at the option of the company after the policy has been in force for six (6) years after the date of issue;
except for nonpayment of premiums, and except for violation of the conditions of the policy relating to naval and military service in time of war, and at the option of the company provisions relative to benefits in the event of total and permanent disability and provisions which grant additional insurance specifically against death by accident may also be excepted.
(4) That if the age of the insured and/or beneficiary, if that age enters into the determination of the premiums charged or benefits promised, has been misstated, the amount payable under the policy shall be such as the premium would have purchased at the correct age of the insured and/or beneficiary.
(5) That all statements made by the insured in the application shall, in the absence of fraud, be deemed representations and not warranties.
(6) That, in the case of participating policies, the policy shall participate in the surplus of the company as apportioned by the board of directors of the company, and that, beginning not later than the end of the fifth policy year, the company will determine and account for the portion of the divisible surplus so ascertained accruing on the policy, and that the owner of the policy shall have the right to have the current dividends arising from such participation paid in cash, and that at periods of not more than five (5) years, such accounting and payment at the option of the policyholder shall be had. The owner of the policy may elect to take any of the other dividend options in the policy. If the owner of the policy shall not elect any of the other dividend options provided in the policy, the apportioned dividends shall be held to the credit of the policy and be payable in cash at maturity of the policy or be withdrawable in cash at any anniversary of its date;
provided, however, that if the policy shall contain a provision for
an apportionment of the surplus at the end of the first policy year
and annually thereafter, then and in that event, said policy may
provide that each dividend shall be paid subject to the payment of
the premium of the next ensuing year.
(7) Nonforfeiture provisions in accordance with the requirements of section 7 of this chapter.
(8) That the company, at any time while the policy is in force, will loan, on the execution of a proper assignment of the policy, and on the sole security thereof, at a specified rate of interest (payable in advance if the company so elects), a sum, which, together with the sum of:
(A) previously existing indebtedness, if any, including interest thereon to the end of the current policy year; and
(B) interest to the end of the current policy year on the amount newly loaned;
is equal to or, at the option of the insured, less than the cash surrender value at the end of the current policy year as provided for by the policy in accordance with the terms of section 7 of this chapter; provided, that the company may, as a condition precedent to the making of such loan, and at its own option, require the payment of the unpaid balance, if any, of the premium or premiums for the current policy year, and may require the payment of interest in advance on the total loan to the end of the current policy year. The policy may provide that, if interest on the loan is not paid when due, it shall be added to the existing loan and become a part thereof and bear interest at the same rate as the loan. It shall further be stipulated in the policy that failure to repay any such loan or pay interest thereon shall not void the policy unless such total indebtedness to the company shall equal or exceed such cash surrender value at the time of such failure, nor until thirty (30) days after notice shall have been mailed by the company to the last known address of the insured and to the assignee, if any, if such assignee has notified the company of his address. No condition other than as provided in this subdivision shall be exacted as prerequisite to any such loan. The company shall reserve the right to defer the granting of any loan, except when made to pay premiums on a policy or policies issued by it, for six (6) months after application therefor is made. The provisions of this subdivision shall not be required in term policies nor shall they apply to paid-up insurance issued or granted in exchange for lapsed or surrendered policies.
except for nonpayment of premiums, after the policy
has been in force for two (2) years after its date of issue, and that
no statement made by a person insured under the policy relating
to the person's insurability may be used in contesting the validity
of the insurance with respect to which the statement was made,
unless: except as provided in clause (A), (B), (C), or (D):
the insurance has not been in force for a period of two (2)
years or longer during the person's lifetime; or The validity of
a policy may be contested at any time for nonpayment of
the statement is contained in a written instrument signed
by the insured person. The validity of a policy may be
contested based on a statement made by a person insured
under the policy that relates to the person's insurability if:
(i) the statement is set forth in a written instrument signed by the insured; and
(ii) the policy has not been in force for two (2) years after the date of issue.
(C) The validity of a policy may be contested based on a statement made by a person insured under the policy that relates to the person's insurability if:
(i) the policy has not been in force for at least two (2) years during the person's lifetime; and
(ii) the policy has not been in force for two (2) years after its date of issue.
(D) The validity of a policy that is part of a viatical settlement contract (as defined in IC 27-8-19.8-6) may be contested on the grounds of fraud in connection with an application for life insurance benefits under the policy until the policy has been in force for six (6) years after the date of issue.
However, a provision under this subdivision may not preclude the assertion at any time of defenses based upon provisions in the policy that relate to eligibility for coverage.
(3) A provision that a copy of the application, if any, of the policyholder must be attached to the policy when issued, that all statements made by the policyholder or by the persons insured are to be deemed representations and not warranties, and that no statement made by any person insured may be used in any contest unless a copy of the instrument containing the statement is or has been furnished to the insured person or, in the event of death or incapacity of the insured person, to the insured person's
beneficiary or personal representative.
(4) A provision setting forth the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance to furnish evidence of individual insurability satisfactory to the insurer as a condition to part or all of the person's coverage.
(5) A provision specifying an equitable adjustment of premiums, benefits, or both to be made in the event the age of a person insured has been misstated. A provision under this subdivision must contain a clear statement of the method of adjustment to be made.
(6) A provision that any sum becoming due by reason of the death of the person insured must be payable to the beneficiary designated by the person insured. However, if a policy contains conditions pertaining to family status, the beneficiary may be the family member specified by the policy terms, subject to the provisions of the policy in the event there is no designated beneficiary, as to all or any part of the sum, living at the death of the person insured, and subject to any right reserved by the insurer in the policy and set forth in the certificate to pay at its option a part of the sum not exceeding two thousand dollars ($2,000) to any person appearing to the insurer to be equitably entitled to that payment by reason of having incurred funeral or other expenses incident to the last illness or death of the person insured.
(7) A provision that the insurer will issue to the policyholder, for delivery to each person insured, a certificate setting forth a statement that:
(A) explains the insurance protection to which the person insured is entitled;
(B) indicates to whom the insurance benefits are payable;
(C) explains any dependent's coverage included in the certificate; and
(D) sets forth the rights and conditions that apply to the person under subdivisions (8), (9), (10), and (11).
(8) A provision that if the insurance, or any portion of it, on a person covered under the policy, or on the dependent of a person covered, ceases because of termination of employment or termination of membership in the class or classes eligible for coverage under the policy, the person or dependent is entitled, without evidence of insurability, to an individual policy of life insurance issued to the person or dependent by the insurer without
disability or other supplementary benefits, provided that an
application for the individual policy is made and that the first
premium is paid to the insurer within thirty-one (31) days after the
termination, and provided further that:
(A) the individual policy must, at the option of the person or dependent, be on any one (1) of the forms then customarily issued by the insurer at the age and for the amount applied for, except that the group policy may exclude the option to elect term insurance;
(B) the individual policy must be in an amount not in excess of the amount of life insurance that ceases because of the termination, less the amount of any life insurance for which the person or dependent becomes eligible under the same policy or any other group policy within thirty-one (31) days after the termination (however, any amount of insurance that has matured on or before the date of the termination as an endowment payable to the person insured, whether in one (1) sum, in installments, or in the form of an annuity, may not, for the purposes of this clause, be included in the amount of insurance that is considered to cease because of the termination); and
(C) the premium on the individual policy must be at the insurer's then customary rate applicable to the form and amount of the individual policy, to the class of risk to which the person or dependent then belongs, and to the individual age attained by the person or dependent on the effective date of the individual policy.
Subject to the conditions set forth in this subdivision, the conversion privilege created by this subdivision must be available to a surviving dependent of a person covered under a group policy, with respect to the coverage under the group policy that terminates by reason of the death of the person covered, and to the dependent of an employee or member after termination of the coverage of the dependent because the dependent ceases to be a qualified family member under the group policy, while the employee or member remains insured under the group policy.
(9) A provision that if the group policy terminates or is amended so as to terminate the insurance of any class of insured persons, every person insured under the policy at the date of the termination whose insurance terminates, including the insured dependent of a covered person, and who has been so insured for at least five (5) years before the termination date, is entitled to
have issued by the insurer an individual policy of life insurance,
subject to the same conditions and limitations as are provided in
subdivision (8), except that the group policy may provide that the
amount of the individual policy may not exceed the lesser of:
(A) the amount of the person's life insurance protection that is ceasing because of the termination or amendment of the group policy, less the amount of any life insurance for which the person is eligible or becomes eligible under a group policy issued or reinstated by the same insurer or another insurer within thirty-one (31) days after the termination; or
(B) ten thousand dollars ($10,000).
(10) A provision that if a person insured under the group policy, or the insured dependent of a covered person, dies during the period within which the covered person or dependent would have been entitled to have an individual policy issued under subdivision (8) or (9) or before such an individual policy becomes effective, the amount of life insurance that the covered person or dependent would have been entitled to have issued under an individual policy is payable as a claim under the group policy, whether or not application for the individual policy or the payment of the first premium for the individual policy has been made.
(11) If active employment is a condition of insurance, a provision that an insured may continue coverage during the insured's total disability by timely payment to the policyholder of that portion, if any, of the premium that would have been required for the insured had total disability not occurred. The continuation of coverage under this subdivision on a premium paying basis must extend for a period of six (6) months from the date on which the total disability started, but not beyond the earlier of:
(A) the date of approval by the insurer of continuation of the coverage under any disability provision that the group insurance policy may contain; or
(B) the date of discontinuance of the group insurance policy.
(12) In the case of a policy insuring the lives of debtors, a provision that the insurer will furnish to the policyholder, for delivery to each debtor insured under the policy, a certificate of insurance describing the coverage and specifying that the death benefit will first be applied to reduce or extinguish the indebtedness.
(c) Subsections (b)(6) through (b)(11) do not apply to policies insuring the lives of debtors. The standard provisions required under
IC 27-1-12 this chapter for individual life insurance policies do not
apply to group life insurance policies.
(d) If a group life insurance policy is on a plan of insurance other than the group plan, it must contain a nonforfeiture provision that, in the opinion of the commissioner, is equitable to the insured persons and to the policyholder. However, group life insurance policies need not contain the same nonforfeiture provisions as are required for individual life insurance policies under
IC 27-1-12 this chapter.
SECTION 4. IC 27-8-19.8-6 IS AMENDED TO READ AS FOLLOWS [EFFECTIVE UPON PASSAGE]: Sec. 6. As used in this chapter, "viatical settlement contract" means
a written an agreement
between a viatical settlement provider and a viator under the terms of
which the viatical settlement provider gives anything of value to the
viator, which for the purchase, sale, assignment, transfer, devise, or
bequest of a portion of the death benefit or ownership of a life
insurance policy or contract for consideration that is less than the
expected death benefit of the life insurance policy in return for the
viator's assignment, bequest, devise, sale, or transfer of all of the death
benefit, certificate, or ownership of the insurance policy to the viatical
settlement provider. or contract. The term does not include the
(1) A loan by
a life insurance company an insurer under the
terms of a life insurance policy, including a loan secured by the
cash value of a policy.
(2) An agreement with a bank, savings bank, savings and loan association, credit union, or other licensed lending institution that takes an assignment of a life insurance policy as collateral for a loan.
(3) The provision of accelerated death benefits by an insurer to an insured under the provisions of a life insurance contract.
(4) Agreements between an insurer and a reinsurer.
(5) An agreement by a person who enters into not more than one (1) such agreement in any five (5) year period to purchase a life insurance policy or contract for the transfer of a life insurance policy for a value that is less than the expected death benefit.
SECTION 5. An emergency is declared for this act.