Fiscal Note - SB 0031 - Regulates Viatical Settlements (Receipt of Life Insurance Proceeds Before Death)
L.R. NO. 0152-02
BILL NO. SB 31
SUBJECT: Consumer, Insurance
TYPE: Original
DATE: December 23, 1996
FISCAL SUMMARY
ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED FY 1998 FY 1999 FY 2000
Insurance
Dedicated ($25,560) ($45,321) ($47,066)
Total Estimated
Net Effect on All
State Funds ($25,560) ($45,321) ($47,066)
ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED FY 1998 FY 1999 FY 2000
None
Total Estimated
Net Effect on All
Federal Funds $0 $0 $0
ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED FY 1998 FY 1999 FY 2000
Local Government $0 $0 $0
FISCAL ANALYSIS
ASSUMPTION
Officials of the Department of Insurance (INS) assume this proposal would
have fiscal impact on the Insurance Dedicated Fund.
INS estimates that there would be a license pool of approximately 100. The
license fee would be $100 annually. Income from the original applicants
would be $10,000 (100 x $100). Beginning in FY 99, each annual statement
filing would be accompanied with an additional $50 fee; therefore, an
additional $5,000 (100 x $50) would be realized.
INS assumes that this proposal would require the director of INS to regulate
discount rates utilized in viatical settlement contracts. INS assumes that
this would require additional actuarial services, which would be contracted
with an estimated cost for six months of FY 98 of $10,000; FY 99 of $21,425;
and FY 2000 of $22,174. Officials stated that an Insurance Financial Analyst
II (1.0 FTE) ($25,513) would be needed to review original applications for
licensure and review contracts and annual statement filings. INS assumes
expenses would include rental space for one FTE and communication and office
expenses of $6,847. Equipment would include a personal computer and office
workstation of $6,597.
Oversight assumes no additional rental space would be needed.
FISCAL IMPACT - State Government FY 1998 FY 1999 FY 2000
(6 Mo.)
INSURANCE DEDICATED FUND
Income - Department of Insurance
Application fees $10,000 $15,000 $15,000
Costs - Department of Insurance
Personal service (1 FTE) ($13,075) ($26,805) ($27,475)
Fringe benefits ($3,730) ($7,647) ($7,839)
Expense and equipment ($18,755) ($25,869) ($26,752)
Total Costs - Department of Insurance ($35,560) ($60,321) ($62,066)
ESTIMATED NET EFFECT ON
INSURANCE DEDICATED FUND ($25,560) ($45,321) ($47,066)
FISCAL IMPACT - Local Government FY 1998 FY 1999 FY 2000
(6 Mo.)
$0 $0 $0
FISCAL IMPACT - Small Business
This proposal could affect small businesses to the extent that it creates a
license fee and annual filing fees.
DESCRIPTION
This proposal is called the "Viatical Settlements Act" and would regulate the
transfer of interest in life insurance.
This proposal would require the Department of Insurance to issue a license
for every person desiring to act as a viatical settlement provider. A
viatical settlement provider is defined as some entity who pays compensation
to a person covered under a life insurance policy to obtain the future death
benefit from that person.
The director of INS would collect an annual license fee of $100. Applicants
for a license would provide a detailed plan of operation and would have a
good reputation, experience, and competence.
Viatical settlement contracts would have to be filed with the director of INS
for approval. A contract could be disapproved if it is unreasonable,
contrary to public interest , or misleading. The director of INS would be
allowed to examine the records of any licensee or applicant and the expense
of the examination would be borne by the licensee or applicant.
The viatical settlement provider would be required to give specified
information to the insured person, including possible alternatives, tax
consequences, and the right to rescind. If the insured person would have
life-threatening illness, that person would first be certified to be of sound
mind and would give written consent to the contract.
The insured would be allowed to request a refund within 30 days of the
contract or 15 days of receipt of the proceeds, whichever is less.
Any violation of this proposal would be considered an unfair trade practice.
Fines for such violations reach $25,000 per violation and $250,000 in the
aggregate.
This proposal has an effective date of January 1, 1998.
This legislation is not federally mandated, would not duplicate any other
program and would not require additional capital improvements.
SOURCES OF INFORMATION
Department of Insurance
This Fiscal Note is not an official copy and should not be quoted or cited.