SECTION 3.1741. Required Form Provisions

(a) Life settlement contracts. All contracts used to effectuate life settlements must contain the provisions set forth in paragraphs (1) - (8) of this subsection, as follows:

(1) a provision that the life settlement contract or the contract together with the application, including any amendments and attachments, constitute the entire contract between the parties;

(2) a provision that any change to the life settlement contract is valid only on written approval by an executive officer of the life settlement provider designated in the contract with authority to bind the provider and that such approval must be endorsed in or attached to the life settlement contract. The provision must also state that no person, other than an executive officer of the provider, has the authority to change the life settlement contract or to waive any of its provisions;

(3) a provision that, in the absence of fraud, all statements made by the owner and insured are representations and not warranties;

(4) a provision that the owner may designate any individual of legal age, in regular contact with the insured, as a contact for inquiries about the insured's health status on written notice providing the name, address, and telephone number of such individual. The provision must include a statement that the owner may change a designation at any time on written notice to the life settlement provider;

(5) a provision that the licensed life settlement provider must provide to the insured the name, address, and telephone number of the life settlement broker, provider, or authorized representative of the provider or broker that will contact the insured or the insured's designee for tracking purposes and must notify the insured of any change in such information;

(6) a provision defining how any notice required or permitted under the contract must be given and delivered;

(7) a provision disclosing what effect the life settlement contract will have on payment of premiums and disposition of proceeds, cash values, and dividends; and

(8) a provision disclosing that, if the policy that is the subject of the life settlement contract is a joint policy, or contains riders or other provisions insuring the lives of a spouse, dependents, or anyone else other than the owner, there may be a possible loss of coverage, and that the owner should contact the owner's insurance company or agent to determine if the coverage may be converted to avoid losing the coverage.

(b) Prohibited provisions. A contract used to effect life settlement must not:

(1) contain an indemnification or a hold harmless provision that requires the owner or insured to protect another person against liability, loss, or damages that exceed the proceeds of the life settlement contract received by the owner; or

(2) require any owner to condition a life settlement contract on the exclusive dealing between the owner and the life settlement broker or provider.

(c) Accidental death benefits. The death benefit provision for accidental death contained within the policy must remain payable to the beneficiary last named by the owner or to the owner's estate. Nothing contained here requires the life settlement provider or any subsequent owner of the policy to continue any accidental death benefits attached to the policy by rider or endorsement.

(d) Retained ownership. If a life settlement provider enters into a life settlement contract that allows the owner to retain an interest in the policy, or if the policy contains a clause in the policy or attached to the policy by rider, that provides a death benefit for accidental death, the life settlement contract or amendment must contain a provision that:

(1) the life settlement provider will transfer the amount of the net death benefit only to the extent or portion of the amount sold. The provision must also state that benefits in excess of the amount sold will be paid by the insurance company directly to the beneficiaries in accord with the terms of the policy;

(2) the life settlement provider will, on acknowledgment of the perfection of the transfer, either:

(A) advise the owner in writing that the insurance company has confirmed the owner's remaining interest in the policy; or

(B) provide the owner with a copy of the document prepared by the insurance company that acknowledges the owner's remaining interest in the policy; and

(3) defines the apportionment of premiums the life settlement provider and the owner will pay. The life settlement contract or amendment may specify that the life settlement provider will pay all premiums. The contract or amendment may also require the owner to reimburse the life settlement provider for the premiums attributable to the remaining interest, including any premiums for the accidental death benefit, subsequent to the life settlement contract.

(e) General contract requirements. All life settlement contracts, in addition to meeting the other requirements of this section, must contain:

(1) consistent terminology;

(2) a section defining key terms used in the life settlement contract;

(3) the name of the owner and insured;

(4) the number of the policy that serves as the basis for the life settlement contract;

(5) the name of the insurance company underwriting the policy at the time of contract;

(6) the amount of the net death benefit of the policy; and

(7) signature lines for the life settlement provider and the owner.

(f) Required disclosures. All life settlement contracts, in addition to meeting the other requirements of this section, must contain the written disclosures required by Insurance Code §1111A.012 and §1111A.014 for delivery to the owner by the life settlement broker, or provider if there is no broker involved in the transaction, with each application for a life settlement contract. For purposes of Insurance Code §1111A.012(a)(8), if the amount of compensation is not known at the time of application, the method of calculation must be provided at the time of application, and the amount of compensation must be provided at the date the life settlement contract is signed by the owner.

(g) Escrow and trust. A life settlement provider that places the proceeds of the life settlement contract into an escrow or trust account must comply with the following:

(1) the escrow agent may not be any person under common control with a life settlement broker or provider;

(2) the escrow or trust agreement must contain:

(A) the name of the owner;

(B) the number of the policy that serves as the basis for the life settlement contract;

(C) the name of the insurance company underwriting the policy at the time of contract execution;

(D) the name of the life settlement provider purchasing the policy;

(E) the name, address, and telephone number of the escrow agent or trustee;

(F) the amount of the owner's proceeds placed into the escrow or trust account;

(G) all terms and conditions of the escrow or trust agreement;

(H) the name and address of the financial institution holding the escrow funds into which the provider will pay the funds to the owner;

(I) a description of the purpose of the escrow or trust account;

(J) the circumstances that will trigger disbursement of the funds from the escrow or trust account;

(K) the limitations concerning, or time restrictions for, the insurance company's affirmative acceptance and acknowledgement of the assignment of the policy;

(L) if applicable, the process for required notices for communication if the owner rescinds the life settlement contract pursuant to Insurance Code §1111A.012(a)(5) or if the insurance company does not accept the policy assignment or transfer of ownership;

(M) the duties of the escrow agent or trustee;

(N) the designation of the escrow agent or trustee;

(O) the limits of liability for the escrow agent or trustee;

(P) the process for resolving any dispute arising between the owner and the life settlement provider, the escrow agent, or the trustee concerning the interpretation of the escrow or trust agreement; and

(Q) a signature line for the life settlement provider, the owner, and the escrow agent or trustee.

(h) Medical release. A medical release form must:

(1) be in writing and signed by the insured; and

(2) disclose the medical records covered by the release, the purposes for the release, the identity of the person to whom the information is to be released, any limitations on the right to withdraw consent, and that the release form may be used to determine and track the insured's ongoing health status.

(i) Policy release. A policy release form must:

(1) be in writing and signed by the owner; and

(2) disclose the information covered by the release, the purposes of the release, the identity of the person to whom the information is to be released, and the owner's right to withdraw consent.

(j) Power of attorney. A power of attorney form must be limited to the purpose of releasing medical information in connection with the settlement transaction, including tracking the ongoing health status of the insured.

(k) Verification of coverage. A verification request form must be limited to information relevant to the life settlement contract, including, if requested:

(1) the policy owner;

(2) the cash surrender value;

(3) the accelerated death benefit at that time; and

(4) the premium and mode of premium payment.

(l) Owner's copies. The life settlement broker or provider must provide the owner with a copy of the life settlement contract and all materials used to effectuate the life settlement contract, including the application, a copy of the escrow or trust agreement, and any consent forms or any other document that the life settlement broker or provider required the owner or the owner's representative to sign to effectuate the life settlement contract. The life settlement contract and all other materials used to effectuate the life settlement contract must be provided at no charge to the owner.

Source Note: The provisions of this §3.1741 adopted to be effective August 1, 2013, 38 TexReg 4357