[§431E-32]  Disclosure to insurer.  (a) Without limiting the ability of an insurer from assessing the insurability of apolicy applicant and determining whether or not to issue the policy, and inaddition to other questions an insurance carrier may lawfully pose to a lifeinsurance applicant, insurance carriers may inquire in the application forinsurance whether the proposed owner intends to pay premiums with theassistance of financing from a lender that will use the policy as collateral tosupport the financing.

(b)  If, as described in subsection (a)(3) ofthe definition of "life settlement contract" in section 431E-2, theloan provides funds that can be used for a purpose other than paying for thepremiums, costs, and expenses associated with obtaining and maintaining thepolicy and loan, the application shall be rejected as a violation of theprohibited practices in section 431E-41.

(c)  If the financing does not violate section 431E-41in this manner, the insurance carrier:

(1)  May make disclosures to the applicant and theinsured, either on the application or an amendment to the application to becompleted no later than the delivery of the policy, including the following:

 

"Ifyou have entered into a loan arrangement where the policy is used ascollateral, and the policy does change ownership at some point in the future insatisfaction of the loan, the following may be true:

(1) A change of ownership could lead to astranger owning an interest in the insured's life;

(2) A change of ownership could in the futurelimit your ability to purchase future insurance on the insured's life becausethere is a limit to how much coverage insurers will issue on one life;

(3) Should there be a change of ownership andyou wish to obtain more insurance coverage on the insured's life in the future,the insured's higher issue age, a change in health status, and/or other factorsmay reduce the ability to obtain coverage and/or may result in significantlyhigher premiums;

(4) You should consult a professional advisor,since a change in ownership in satisfaction of the loan may result in taxconsequences to the owner, depending on the structure of the loan"; and

 

(2)  May require certifications, such as thefollowing, from the applicant and/or the insured:

"(1) I have not entered into any agreementor arrangement providing for the future sale of this life insurance policy;

(2) My loan arrangement for this policyprovides funds sufficient to pay for some or all of the premiums, costs, andexpenses associated with obtaining and maintaining my life insurance policy,but I have not entered into any agreement by which I am to receiveconsideration in exchange for procuring this policy; and

(3) The borrower has an insurable interest inthe insured."

[L 2008, c 177, pt of §1]