Cal. Code Regs. Tit. 10, § 2548.8 - Retained Rights and Interests

(a) if the provider enters into a life settlement that allows the owner to retain an interest in the policy, the life settlement contract shall provide for the payment of such benefits to an irrevocable beneficiary or beneficiaries.

(b) If the owner and provider have agreed that the owner shall retain an interest in the policy in accordance with subdivision (a) of this section, the policy or certificate of ownership must be endorsed by the insurer acknowledging the owner's interest in the policy with the appropriate designation of an irrevocable beneficiary or beneficiaries prior to the transfer of policy or certificate of ownership. The provider must notify the owner when the policy has been so endorsed.

(c) If the owner and provider have agreed that the owner shall retain an interest in the policy in accordance with subdivision (a) of this section, the life settlement contract shall contain the following provisions:

(1) a provision that establishes the terms under which compensation or any thing of value will be paid to the owner, which compensation or thing of value is less than the expected death benefit of the insurance policy or certificate provided; however, that the minimum value shall be greater than a cash surrender value or accelerated death benefit available at the time of application for the life settlement contract pursuant to subdivision (k) of section 10113.1 of the Insurance Code;

(2) a provision that the life settlement transaction will effect the transfer of the amount of the death benefit to the provider only to the extent or portion of the amount settled. Benefits in excess of the amount settled shall be paid by the insurance company directly to the irrevocable beneficiary or beneficiaries designated pursuant to section 2548.8, subdivision (b) of these regulations;

(3) a provision that states all premiums shall be paid by the provider;

(4) provisions stating that in the event that the policy lapses before maturation, the provider shall:

(A) notify the owner that the policy will lapse thirty (30) days before the policy lapses, and provide the owner the opportunity to pay the entire premium to maintain the policy for the benefit of only the owner or the owner's irrevocable beneficiary or beneficiaries;

(B) pay to the owner, if the owner forgoes the opportunity to maintain the premium payments to receive the entire death benefit on the policy, an amount equivalent to the death benefit that the owner's designated beneficiary would have received had the policy reached maturation within 30 days after the policy lapses;

(5) a provision that states, in the event the provider sells the policy, that the subsequent purchaser shall assume all of the rights and obligations of the provider with respect to the retained beneficiary sale, including the obligations in section 2548.8, subdivisions (c)(3) and (c)(4) herein.

(6) a provision that states that any amount paid to the owner directly from the provider or purchaser may be subject to taxation, and that assistance should be sought from a professional tax adviser.

(d) If the owner and provider have agreed that the owner shall retain an interest in the policy in accordance with subdivision (a) of this section, and the insurer agrees to split the policy into two separate policies owned respectively by the owner and provider, and the owner and provider maintain the separate and distinct obligation to pay the premiums on their respective policy, the provider is exempted from including in the life settlement contract the provisions required by sections 2548.8(c)(3), (4), (5), and (6) herein.

Notes

Cal. Code Regs. Tit. 10, § 2548.8

1. New section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).
2. Repealer and new section filed 7-29-2010 as an emergency; operative 7-29-2010. Emergency regulation shall remain in effect, not to be repealed by the Office of Administrative Law, unless repealed by the Department of Insurance pursuant to Insurance Code section 10113.35 (Register 2010, No. 31).
3. Change without regulatory effect amending NOTE filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).
4. Repealer and new section filed 11-25-2014; operative 1-1-2015 (Register 2014, No. 48).

Note: Authority cited: Sections 10113.2 and 10113.35, Insurance Code; Cal-Farm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (1989); 20th Century Ins. Co. v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 10113.1 and 10113.3, Insurance Code.

1. New section filed 12-22-2006; operative 1-21-2007 (Register 2006, No. 51).
2. Repealer and new section filed 7-29-2010 as an emergency; operative 7-29-2010. Emergency regulation shall remain in effect, not to be repealed by the Office of Administrative Law, unless repealed by the Department of Insurance pursuant to Insurance Code section 10113.35 (Register 2010, No. 31).
3. Change without regulatory effect amending Note filed 1-24-2012 pursuant to section 100, title 1, California Code of Regulations (Register 2012, No. 4).
4. Repealer and new section filed 11-25-2014; operative 1/1/2015 (Register 2014, No. 48).