Recognize fraternals and policy settlements

Introduction

This lesson covers two topics that sit at the edge of ordinary life insurance.

A fraternal benefit society is a member organization that provides insurance to its members, alongside its social or charitable purpose. You need to recognize one and know which of its sales people need a license.

A policy settlement is the sale of an existing life insurance policy to someone else for cash. Nevada calls this a viatical settlement. The seller is usually the policy owner, who needs money now. The buyer pays less than the death benefit and collects the death benefit later. Because the buyer profits when the insured dies sooner, Nevada surrounds these sales with protections: who may take part, what must be disclosed, how the money moves, and how the seller can back out.

All cases and dollar amounts in this lesson are fictional and stipulated for teaching. This lesson describes Nevada law. Other states' rules differ.

By the end, you should be able to:

• Recognize a fraternal benefit society and decide whether a person selling for one needs a license, and which taxes the society still owes.
• Name each party in a settlement and say whom each one represents.
• Apply Nevada's five-year restriction, disclosure, escrow, payment, and rescission rules to a new case.
• Explain the limits on contacting the insured after a sale, and on sharing the insured's identity.
• Tell a lawful later sale of a policy apart from a policy that was improperly started for strangers.

Before you start, it helps to know:

• Insurable interest and the owner, insured, and beneficiary roles, from Who is insured, who owns the policy, and who receives the money?
• Accelerated death benefits, from Understand ways to receive policy benefits
• Group certificates and conversion, from Distinguish business and group coverage
• Producer licensing basics, from Obtain and keep the right license
• How a policy free look works, from Replace a policy responsibly and use the free look. Settlement rescission is a different right, with different timing.

Part 1: What makes an organization a fraternal benefit society

Plain-English takeaway: A fraternal is a nonprofit membership organization, run by its members through local chapters, that provides insurance-type benefits to those members and their families.

Nevada defines a fraternal benefit society by what it does and how it is run. It is a society, order, or supreme lodge without capital stock, which means no shareholders own it. It must also meet all four of these conditions:

1. It runs only for members and their beneficiaries, not for profit. There are no outside owners collecting profits.
2. It operates on a lodge system with a ritualistic form of work. It has local units, often called lodges, councils, or camps, with their own ceremonies.
3. It has a representative form of government. Members elect the people who run it.
4. It provides benefits under Nevada's fraternal chapter.

Normally the society must be incorporated. The definition also reaches one specific type of exempted association, even if it is unincorporated.

Example. A fictional lodge-based order has local councils that meet monthly. Its members elect delegates, and it issues life insurance certificates to members. It has no stockholders. It fits all four conditions.

Why one missing feature changes the answer. Now picture a stock company that sells life insurance through "member clubs." It has shareholders and no elected representative government. It is an insurer using membership as marketing. It is not a fraternal. The word "member" is not the test. Ownership, purpose, lodge structure, and elected government are.

Forming a society

Ten or more U.S. citizens, a majority of them Nevada citizens, may sign articles of incorporation. The articles state:

• The society's name, which must not be confusingly similar to another society or insurer.
• Its purposes, which may be no broader than the fraternal chapter allows.
• How its powers will be exercised.
• Who will manage it for the first year.

The society's supreme governing body must then elect all officers no later than one year after the permanent certificate of authority is issued.

What benefits a society may provide

A Nevada fraternal may provide:

• Death benefits
• Endowment benefits
• Annuity benefits
• Temporary or permanent disability benefits
• Hospital, medical, or nursing benefits
• Monument or tombstone benefits for deceased members
• Other benefits life insurers may pay, if consistent with the fraternal chapter

The society's own laws or rules say who may be covered, consistent with serving members and their dependents. A society may cover a child below adult membership age when an adult applies.

Who must be licensed to sell for a fraternal

Plain-English takeaway: Fraternal agents are licensed like other life and health agents. Only two narrow groups who are not really selling are exempt.

The starting rule is that every insurance agent of a society must be licensed under Nevada's producer licensing law, the same way as other life and health agents. A person who already held an agent license on July 1, 1977, does not have to take an exam to renew.

No exam or license is required for only two groups:

• A regular salaried officer or employee who meets both of these conditions:
• Spends substantially all of their work on activities other than soliciting fraternal insurance from the public.
• Receives no commission or other pay for soliciting that depends directly on how much business they bring in.
• A member who meets all three of these conditions:
• Does not write insurance contracts.
• Solicits or negotiates only as an incidental part of recruiting new members.
• Is rewarded only with merchandise prizes or a nominal amount of money.

Why the exemptions are narrow. Each exemption has its own test. The salaried-employee exemption depends on two things: the person's work is mostly something other than soliciting the public, and the person gets no commission or other pay that depends directly on the amount of business obtained. The member exemption works differently. It asks whether the member writes contracts, whether their solicitation is only incidental to bringing in new members, and whether their only reward is merchandise prizes or a nominal sum of money. A member who sells actively, or who earns real money from selling, falls outside it. The tempting mistake is to think "fraternal" means "no license needed." The license rule applies to every agent. The exemptions cover only people who are not really acting as salespeople.

Taxes

Nevada declares a society organized or licensed under the fraternal chapter to be a charitable and benevolent institution. The society is exempt from every state, county, district, municipal, and school tax except these three:

• The commerce tax
• Taxes on real property
• Taxes on office equipment

This exemption describes the society's own taxes. It is not a blanket "all taxes exempt" rule. It also says nothing about whether a member's benefits are taxed.

Check 1. A fictional organization, the Order of the Sage Lodge, is incorporated in Nevada and has no capital stock. It operates only for its members and their beneficiaries, not for profit. Members are initiated with a ritual into local lodges, which its laws require to meet at least monthly. Members elect delegates to a supreme assembly, and that assembly elects the board and officers. It issues life insurance certificates to members under Nevada's fraternal chapter.

First, does the Order qualify as a fraternal benefit society?

Next, the Order has three people who bring in new business:

• (a) A salaried bookkeeper who spends nearly all of their time on accounting, occasionally answers a member's question about a certificate, and earns no sales-based pay.
• (b) A member who never writes contracts. They invite friends to join the lodge and receive a lodge-logo jacket as a prize.
• (c) A member who spends most of their week actively selling certificates to the public and earns 10% of the first-year premium on each certificate they sign up.

Which of these people need a license? And does the Order owe property tax on the building it owns?

Answer: Explanation

The Order qualifies. It has no capital stock and is incorporated. It meets all four conditions: it runs only for members and their beneficiaries, not for profit; it uses a lodge system with ritual and regularly meeting local lodges; members elect its governing body; and it provides benefits under the fraternal chapter. If any one of these were missing, such as outside shareholders or a board no member elects, it would not be a fraternal.

(a) and (b) need no license. (c) does.

• The bookkeeper fits the salaried-employee exemption. Almost all of their work is not solicitation, and their pay does not depend on business obtained.
• The jacket-prize member fits the member exemption. They write no contracts, their solicitation is incidental to recruiting members, and they receive only a merchandise prize.
• The commissioned member fits neither exemption. They are not a salaried employee whose work is mostly something else. As a member, they fail the member exemption on two counts: a 10% premium commission is real money, not a merchandise prize or a nominal amount, and their selling is their main activity, not something incidental to recruiting new members.

The Order does owe property tax on its building. Real property tax is one of the three named exceptions to the society's exemption.

The misconceptions here are "every fraternal agent is exempt" and "fraternals pay no taxes."

Part 2: What a policy settlement is

Plain-English takeaway: In a settlement, an owner sells some or all of an existing policy's death benefit or ownership for cash now. The buyer pays less than the expected death benefit.

Nevada defines a viatical settlement as a written agreement between a viator and a provider (or the provider's affiliate) with these features:

• The provider pays money or something else of value.
• The payment is less than the expected death benefit.
• In exchange, the viator assigns, sells, transfers, or devises the death benefit or ownership of any portion of the policy.

An agreement to transfer ownership or change the beneficiary in the future also counts, no matter when the viator is paid.

"Policy" here is broad. It includes individual policies, group policies, and group certificates.

Worked example. Dana owns a $300,000 policy on Dana's own life. A licensed provider offers $90,000 for the policy. If Dana accepts:

• Dana receives $90,000 now.
• The provider (or a later purchaser) takes over the policy, keeps paying the premiums, and collects $300,000 when Dana dies.

The $90,000 is a stipulated figure for this lesson. It is not a judgment about what a fair price would be.

Who the "viator" is, and why illness is not required

Plain-English takeaway: The viator is the Nevada owner who sells. The viator does not have to be sick.

A viator is the owner of a policy, or the holder of a group certificate, who resides in Nevada and enters or seeks to enter a settlement. Nevada states directly that the term is not limited to owners who are terminally or chronically ill, except where a specific rule says otherwise.

The viator and the insured can be different people. An owner who insures a spouse's life, for example, is the viator if that owner sells the policy.

In everyday industry language, people often say "viatical settlement" when the insured is terminally ill and "life settlement" when the insured is older but not terminally ill. Nevada's statute uses "viatical settlement" for both. Do not assume Nevada's rules apply only to sick sellers.

Two health definitions matter in specific rules later in this lesson:

• Terminally ill: having an illness that can reasonably be expected to result in death within 24 months.
• Chronically ill: meeting any one of these:
• Being unable to perform at least two activities of daily living, such as eating, bathing, dressing, moving from place to place, or continence.
• Needing substantial supervision for safety because of a cognitive impairment.
• Having a similar level of disability as determined by the federal Secretary of Health and Human Services.

Settlement versus accelerated benefits. An insurer that pays accelerated benefits under its own policy is not a settlement provider. With accelerated benefits, the insurer pays part of the death benefit early under the policy's terms, and the owner keeps the policy. With a settlement, the policy or its death benefit is sold to someone else.

Check 2. A fictional Nevada resident, Avery, is 71 and healthy. Avery owns a policy on Avery's own life with a $400,000 death benefit, bought 12 years ago. Avery and a licensed provider sign a written agreement under which the provider pays Avery $120,000 now, and Avery transfers ownership of the policy to the provider. Is this a viatical settlement under Nevada law, even though Avery is not ill?

Answer: Explanation

Yes. Avery is a Nevada owner. The agreement is in writing, it is with a licensed provider, and the $120,000 Avery receives is less than the $400,000 expected death benefit, in exchange for ownership of the policy. That meets every part of the definition. The definition of viator is expressly not limited to ill owners, so Avery's good health does not change the answer.

The tempting mistake is to treat "viatical" as meaning "terminally ill." That is common industry usage, but it is not Nevada's statutory test.

Part 3: Who takes part, and whom each party represents

Plain-English takeaway: The broker works for the seller. The provider is the buyer side of the deal. The investment agent works for the provider. Everyone else supplies money.

A settlement can involve several parties. The key question for each one is whose side they are on.

The broker's duty

The viator must be told in writing that a broker represents the viator exclusively. The broker does not represent the insurer or the provider. The broker owes the viator a fiduciary duty, which includes following the viator's instructions and acting in the viator's best interest.

The tempting mistake is to assume the broker represents the buyer because the broker shops the policy to buyers. Shopping the policy is how the broker serves the seller.

A broker also may not knowingly deal with a provider, purchaser, or investment agent that controls the broker, is controlled by the broker, or is under common control with the broker. A provider may not knowingly enter a settlement that pays such a related broker. This is a flat prohibition. It is not something the parties can fix by disclosing it.

The investment agent's limits

An investment agent works on the money-raising side, for the provider. An investment agent may not know the identity of the viator or insured, and may not communicate with them directly or indirectly. This keeps investors away from the person whose death determines their return.

Who is not a provider

The provider definition excludes several parties whose role is different:

• A licensed lender that takes a policy assignment only as security for a loan.
• An insurer paying accelerated benefits under its own policy.
• A stop-loss insurer covering a provider or purchaser.
• A natural person who makes no more than one transfer agreement in a calendar year.
• A financing agent, a special organization, and a purchaser.

Advisers working for the seller

The broker definition does not include an attorney, a CPA, or an accredited financial planner who is retained by the viator and not paid by a provider or purchaser.

Do not read that exclusion as "no license needed." A financial planner who negotiates a settlement on the viator's behalf for pay not coming from a provider or purchaser must be licensed as an insurance consultant. Falling outside one definition only means a different license applies.

Check 3. In each case, whom does the named person represent?

• (a) Jordan, a licensed broker, collects offers from four providers for a fictional viator named Sam.
• (b) Riley is under contract with a licensed provider to line up investors who will fund the policies the provider buys.

Answer: Explanation

(a) Jordan represents Sam exclusively and owes Sam a fiduciary duty. Gathering competing offers serves the seller.

(b) Riley is an investment agent and represents the provider. Riley also may not learn who Sam is or contact Sam.

The misconception "the broker represents the buyer" reverses the actual relationship.

Part 4: Licensing and the life producer exception

Plain-English takeaway: Providers, brokers, and investment agents need a settlement license. An experienced life producer may act as a broker or investment agent by registering instead. That shortcut never covers providers.

The general rule is that no one may operate in or from Nevada as an investment agent, a provider, or a broker without a license from the Commissioner, unless the producer exception below applies.

How the license works:

• It is renewed each year on its anniversary by paying the fees. If the fees are not paid by that date, the license expires.
• A license issued to an organization covers the partners, members, officers, and designated employees named in the application or a supplement to it.

What the Commissioner looks for:

• The applicant is competent, trustworthy, intends to act in good faith, and has a good business reputation.
• A natural person has qualifying experience, training, or education.
• A provider has a detailed plan of operation.
• A provider or broker has an anti-fraud plan and has shown evidence of financial responsibility.

The producer exception. A natural person can act as a broker or investment agent without a separate settlement license if all of these are true:

• They have been licensed as a resident or nonresident producer with a life qualification for at least one year.
• They are in good standing.
• They register with the Division no more than 30 days after first acting in that role, and pay the registration fee.

Late registration, or late or missing payment of the fee, can bring an administrative fine of up to $500.

A producer using the exception must still follow the rules on forms, advertising filing, annual statements, privacy, record keeping, the investment agent rules, seller disclosures, and limits on contacting the insured.

The exception does not cover acting as a provider. A producer who wants to be the buyer side of the deal needs a provider license.

Check 4. For each fictional producer, decide whether they may act through registration alone.

• (a) Morgan has held a life license for three years, is in good standing, and wants to start brokering settlements.
• (b) Casey received a life license eight months ago.
• (c) Morgan wants to buy policies from viators directly as a provider.

Answer: Explanation

(a) Yes. Morgan may act as a broker, but must register within 30 days after first acting as one and pay the fee.

(b) No. Casey has not held the life license for one year, so Casey would need a broker license.

(c) No. The exception covers brokers and investment agents only, never providers.

The misconception "any producer can do settlements without registering" fails in three ways: the one-year requirement, the registration duty, and the exclusion of providers.

Part 5: The five-year restriction

Plain-English takeaway: A policy generally cannot be sold during its first five years unless the owner's life has changed in one of the ways the law lists, or the policy came from converting group coverage that adds up to five years.

A viator may not enter a settlement within 5 years after the policy was issued unless at least one exception applies.

Exception 1: Conversion from group coverage. The policy was issued when the owner exercised a right to convert group coverage, and the time covered under the new policy plus the time covered under the group policy totals at least 60 months. A change of group carrier does not reset the count, as long as coverage was continuous.

Exception 2: Independent evidence of a qualifying event. The viator or owner gives the provider independent evidence that, within the five-year period, one of these events occurred:

1. The owner or insured was diagnosed as terminally ill.
2. The owner or insured was diagnosed as chronically ill, or has a condition that is life-threatening or requires at least two years of treatment, long-term care, or home health care.
3. The spouse of the owner or insured died.
4. The owner or insured divorced.
5. The owner or insured retired from full-time employment.
6. The owner or insured became physically or mentally disabled, and a physician determined the disability prevents full-time employment.
7. A court entered a final judgment or order of bankruptcy, insolvency, reorganization, or appointment of a receiver, trustee, or liquidator for the owner or insured.
8. The owner had a significant, unexpected drop in income that impairs the owner's reasonable ability to pay the premium.

How the insurer is involved. The evidence goes to the insurer when the provider asks the insurer to transfer the policy, and the insurer must respond in a timely way. If the provider submits the owner's or insured's certification that one of these events occurred, that certification conclusively establishes that the settlement is valid. Even so, the insurer keeps its right to contest the policy for fraud.

Worked example. A fictional owner, Lee, had employer group coverage for 52 months. After leaving the job, Lee converted it to an individual policy. Eight months later, Lee wants to sell.

• Under the individual policy alone, Lee is inside the five-year window.
• Under the conversion exception, the count is 52 + 8 = 60 months.
• That meets the 60-month total, so the restriction does not block the sale.

If Lee had kept the converted policy only 7 months, the total would be 59 months. Lee would then need one of the listed events.

A common mistake about the number. Nevada's period is five years. The "two years" in the list refers to a course of medical treatment. It is not a shorter waiting period that replaces the five-year rule.

Check 5. A fictional owner bought an individual policy 3 years ago. It was not converted from group coverage. The owner recently retired from full-time work and wants to sell. May the owner sell now? What must the owner provide?

Answer: Explanation

Yes, if the owner documents the retirement. Retirement from full-time employment within the five-year period is a listed event. The owner gives independent evidence to the provider, and the provider submits it to the insurer with the transfer request.

Without a listed event or a qualifying conversion, the sale would have to wait until the policy is five years old.

Part 6: Disclosures to the seller and to the purchaser

Plain-English takeaway: The seller is told what they are giving up and who benefits from the deal. The purchaser is told why the return is uncertain and what costs they will carry.

Nevada requires two separate sets of disclosures, because the two sides face different risks. All forms of settlement and disclosure used in Nevada must first be filed with and approved by the Commissioner.

To the seller (viator), at the application stage

The provider or broker must give these disclosures no later than the time the application is signed by all parties. They must be in at least 12-point type, in a separate document signed by the viator and the provider or broker. The viator must be told:

• The broker represents the viator exclusively and owes the viator a fiduciary duty.
• There may be alternatives, such as accelerated death benefits or policy loans under the viator's own policy.
• Proceeds may be taxable, so the viator should get professional tax advice.
• Proceeds may be subject to creditors' claims.
• Proceeds may affect eligibility for Medicaid or other government benefits.
• The viator has a right to rescind (cancel) the settlement, explained in Part 8.
• The viator will be paid within 3 business days after the provider receives the insurer's written acknowledgment of the transfer.
• The viator may lose other policy rights, such as conversion and waiver of premium.
• A brochure describing the settlement process is provided.
• Who will monitor the insured's condition, how often, how death will be confirmed, and how the purchaser will learn of it.

The document must also include a privacy statement. Information about the insured may be shared as needed to complete the settlement, the seller will be asked to consent, and refusing consent may affect whether the policy can be sold.

These disclosures say "may." They are warnings to get advice. They are not promises that the money will be taxed, or that it will be tax-free.

To the seller, by the time the settlement is signed

The provider must also disclose, conspicuously and in at least 12-point type:

• Any affiliation between the provider and the insurer.
• The names and contact details of the provider, the broker, and the escrow agent, and the viator's right to see the escrow documents.
• Affiliations involving the purchaser or any person making an offer.
• Any possible loss of coverage on other lives under the policy, such as a joint policy or family riders.
• The current death benefit and any other benefits affected.
• Every offer, counteroffer, acceptance, and rejection.
• The broker's compensation: the amount, how it was calculated, where it came from, the total offer, and the compensation as a percentage of the offer.

Worked example. An accepted offer is $90,000, and the broker is paid $4,500 (both stipulated). The disclosure must show $4,500 ÷ $90,000 = 5% of the offer, along with who pays it.

To the purchaser

Before a purchase agreement is signed by all parties, the provider or its investment agent must tell the purchaser, among other things:

• The purchaser receives no return until the insured dies and a claim is paid.
• The actual return depends on how accurate the life expectancy estimate is. A guaranteed annual return cannot be determined.
• The policy is not a liquid asset.
• Benefits may be lost if the insurer fails.
• The purchaser pays premiums and costs, even if the insured returns to health.
• Contestability risk: the insurer may rescind the policy during the contestable period.
• Whether the purchaser will own the policy or be only its beneficiary, and the extra risks of being beneficiary only.
• The premium cost and the fees.
• The escrow agent and its relationship to the broker.
• Who estimates the insured's life expectancy, what that person's qualifications are, and how they relate to the provider.
• A purchaser brochure.

By the date the policy is transferred, the purchaser must also receive:

• The life expectancy certifications the provider used to set the price.
• Whether premium money is held in escrow, and when that escrow will run out.
• Any premium waivers.
• The policy type and its status, including the extra risks if it is term insurance.
• How much of the contestable period remains.
• Any insurer rights that could cut off the purchaser's rights.

These purchaser disclosures must be conspicuous, in at least 12-point type, and signed by the purchaser and the provider or investment agent.

Separately, complying with Nevada's settlement chapter does not by itself satisfy Nevada's securities laws.

Check 6. A fictional promoter tells a would-be investor, "This settlement guarantees 9% a year." Which required purchaser disclosure does this contradict?

Answer: Explanation

It contradicts the required statement that a guaranteed annual rate of return cannot be determined. The return depends on when the insured actually dies, compared with the estimate.

As Part 10 shows, the word "guaranteed" used this way is also a prohibited advertising term.

Part 7: Closing the sale, escrow, and payment

Plain-English takeaway: The money goes into a protected account before the policy changes hands, and the seller must be paid promptly once the insurer confirms the transfer.

Nevada sets out the closing as a sequence of steps.

1. Before entering the settlement, the provider must obtain: - If the viator is the insured, a written statement from a licensed attending physician that the viator is of sound mind and under no constraint or undue influence. - A witnessed document in which the viator consents, states that they fully understand the settlement and the policy's benefits, and confirms they are entering it freely. Where a payment depends on terminal or chronic illness, the viator also acknowledges the illness and that it was diagnosed after the policy was issued. - The insured's consent to release medical records to the provider or broker and to the insurer.
2. Within 20 days after the viator signs the transfer documents, the provider gives the insurer written notice. The notice includes the medical release, the application, and a request to verify coverage.
3. Within 30 days after receiving that request, the insurer verifies coverage and says whether it intends to investigate the policy's validity or possible fraud. The insurer may not require the parties to sign a form that the Commissioner has not approved for settlements.
4. The viator sends the signed transfer documents to an independent escrow agent. Within 3 business days of receiving them, the escrow agent deposits the settlement proceeds into an escrow or trust account at an FDIC-insured, regulated financial institution. The escrow agent then delivers the documents to the provider.
5. When the insurer acknowledges the change of ownership or beneficiary, the provider instructs the escrow agent to pay the viator. Payment is due within 3 business days after the provider receives that acknowledgment.

If payment is late. If payment is not made in time, the viator may void the settlement for lack of payment, until payment is offered and accepted. Payment counts as made on the date the escrow agent either releases a wire transfer or deposits a check with the U.S. Postal Service or a commercially reasonable delivery service.

Later transfers. If the provider later transfers ownership or changes the beneficiary, it must inform the insured within 20 days. The insurer must answer such a change request within 30 days, may not unreasonably delay it, and may not interfere with a settlement lawfully entered into in Nevada.

Part 8: The seller's right to rescind

Plain-English takeaway: The seller can undo the sale, but only within a short window, and only by both giving notice and paying everything back inside that window.

Every Nevada settlement must give the viator an unconditional right to rescind within the rescission period. The rescission period ends at whichever of these comes first:

• 60 days after the settlement is signed by all parties, or
• 30 days after the viator receives the proceeds.

The rule takes the shorter window, not the longer one.

Worked example. All parties sign on Day 0.

• The viator receives the proceeds on Day 10. Thirty days after that is Day 40. Sixty days after signing is Day 60. The shorter window ends on Day 40.
• Change one fact: the proceeds arrive on Day 45. Thirty days after that is Day 75, but the 60-day limit ends on Day 60. The window now ends on Day 60.

The arrival date of the money decides which limit comes first.

What rescission requires. Rescission is effective only if the viator does both of these within the rescission period:

1. Gives notice of rescission to the provider or broker, and
2. Repays the provider all proceeds, plus any premiums, loans, and loan interest paid on account of the settlement or on the provider's behalf.

Notice alone, however it is given, does not cancel the sale. The repayment must also arrive in time.

If the insured dies during the rescission period. The settlement is automatically treated as rescinded. All proceeds, plus premiums, loans, and interest, must be repaid to the provider within 60 days after the death.

Commissions after a rescission. The broker must refund their commission to the provider within 5 business days after receiving the provider's proper written demand.

The purchaser's separate right. A purchaser may cancel a purchase agreement within 3 business days after receiving the required purchaser disclosures.

Check 7. All parties sign on Day 0, and the fictional viator receives the proceeds on Day 20. On Day 45, the viator calls the broker to cancel, but repays nothing until Day 52.

• When did the rescission period end?
• Is the rescission effective?

Answer: Explanation

The period ended on Day 50. That is 30 days after Day 20, which comes before Day 60.

The rescission is not effective. The notice on Day 45 was inside the window, but notice alone is not enough. The repayment on Day 52 came after the window closed on Day 50, so the viator did not complete both steps in time.

This one case shows two mistakes at once. Using the later of the two dates would put the end at Day 60 and make the Day 52 repayment look timely. Treating the Day 45 notice alone as enough would ignore the late repayment.

Part 9: After the sale — health check-ins and privacy

Plain-English takeaway: Once the policy is sold, the buyer side may check on the insured only on a limited schedule, and must keep the insured's identity and medical information private.

Contacting the insured

After a settlement, contact with the insured to check their health status, or to confirm their address and phone number, is limited:

• Who: only a provider or broker licensed in Nevada, or its authorized representative. The provider or broker is responsible for what that representative does.
• How often: no more than once every 3 months if the insured's life expectancy is 1 year or more, or once a month if it is less than 1 year.
• Explanation: the procedure for these contacts must be explained when the settlement is entered into.

The limit on how often applies to health-status contacts. Contacts for other purposes are not covered by this limit.

Privacy of the insured

Anyone who knows the insured's identity in connection with a settlement may not disclose it, except in these situations:

• It is necessary to complete the settlement or a purchase agreement, and the viator and the insured have both given prior written consent.
• It is in response to an investigation or examination by the Commissioner or another government officer or agency.
• It is a term of a transfer of the policy from one provider to another.
• It is necessary for a financing agent, and the insured has given prior written consent.
• Another statute allows or requires it.

Medical information obtained by a licensee remains subject to Nevada's other medical-confidentiality laws.

Check 8. A fictional insured has an estimated life expectancy of 18 months.

• How often may the provider contact the insured to check on their health?
• The provider also plans to give the insured's name to a financing agent that will fund the provider's purchase of the policy. The file contains the viator's prior written consent to this disclosure, but no written consent from the insured. No government investigation is involved, and the policy is not being transferred to another provider. May the provider disclose the insured's identity to the financing agent?

Answer: Explanation

No more than once every 3 months. Eighteen months is at least one year, so the 3-month limit applies. The monthly limit applies only when life expectancy is under one year.

The provider may not make the disclosure as planned. The financing-agent exception requires the insured's prior written consent, and the viator's consent does not substitute for it. None of the other exceptions fits: there is no government investigation or examination, and the disclosure is not a term of a transfer between providers. The provider must first get the insured's prior written consent, or rely on another statute that allows or requires the disclosure.

Part 10: Advertising, fraud, and enforcement

Plain-English takeaway: Settlement ads must give an honest overall impression. Certain words are banned outright. Fraud is a felony, and violations carry fines and allow victims to recover their losses.

Advertising

These rules cover settlement advertising intended for Nevada, including Internet ads viewed in Nevada.

• An ad must be truthful and not misleading. It is judged by the overall impression it would create on a person of average education in the audience it targets.
• Each licensee must keep a system of control over its ads, including notifying the people who distribute them at least annually. The licensee and the person who creates the ad are both responsible for it.
• A provider may not enter settlements unless its marketing materials have been filed with the Commissioner.

Prohibited claims. These are treated as false and misleading on their face:

• "Guaranteed," "safe," "secure," "fully secured," and "backed by" government, law, or guaranty funds.
• "No risk" or "low risk."
• "Tax deferred," or claims of being IRA- or 401(k)-qualified.
• "No sales charges or fees."
• "High yield," "superior return," or "quick profit."
• "Guaranteed" used to describe returns, principal, or profits.

Offering a refund or letting someone inspect the contract does not cure a misleading statement.

Other required ad practices:

• Testimonials must be genuine. Any financial ties of the person giving them must be disclosed.
• Statistics must be recent and relevant, and their source must be named.
• Ads may not disparage competitors or insurers.
• Ads must name the licensee, and may not hide the provider's identity.
• Ads may not look like, or claim the endorsement of, a government agency.
• An ad stressing speed must disclose average processing times.
• An ad stressing how much money sellers receive must disclose the average purchase price, as a fraction of face value, from the preceding 6 months.

For general advertising principles, see Use honest advertising and required disclosures.

Fraud

It is a category D felony to do any of these knowingly, or with intent to defraud, for gain or to deprive someone else of property:

• Present or conceal material false information in connection with a policy or settlement, such as in an application, underwriting, a claim, or a change of ownership.
• Fraudulently present a policy in a settlement.
• Attempt, assist, or conspire to do either.

Every application or contract must carry a fraud warning. Leaving the warning out is not a defense.

Reporting duty. People engaged in the settlement business who know of, or reasonably believe there is, such fraud must promptly report it to the Commissioner. Anyone else may report. Reporters are immune from liability unless they acted with actual malice. Licensees must maintain anti-fraud measures.

Enforcement

The Commissioner may:

• Seek an injunction against a violator.
• Impose an administrative fine of up to $1,000 per violation.
• Suspend, revoke, or refuse a license, including for acting in bad faith toward a viator.
• Refuse, suspend for up to 12 months, or place on probation a life producer who violates the chapter or acts in bad faith toward a viator.

Courts order restitution alongside criminal penalties. A person harmed by a violation may sue for damages. If a violation occurred in connection with signing a purchase agreement, the purchaser may rescind it by returning the policy to the provider.

Check 9. A fictional web ad viewed in Las Vegas says: "Safe, guaranteed returns. Not satisfied? Full refund." Does the refund offer make the ad acceptable?

Answer: Explanation

No. "Safe" and "guaranteed" returns are prohibited claims. Offering a refund does not cure a misleading statement. The ad is covered because it was viewed in Nevada.

Part 11: Lawful later sale versus stranger-originated insurance

Plain-English takeaway: Selling a policy you bought for your own reasons can be lawful. Starting a policy so that strangers can profit from someone's death is not, and selling it later does not fix that.

Stranger-originated life insurance (STOLI) is an industry term for an arrangement in which investors, not the insured or the insured's family, start the policy as an investment on someone else's life. The insured's loved ones are not the intended beneficiaries.

Nevada handles this through its insurable-interest law.

• Your own life. A person of legal capacity may buy insurance on their own life for the benefit of anyone.
• Someone else's life. A person may not procure, or cause someone to procure, insurance on another individual unless the benefits are payable to the insured, to the insured's personal representatives, or to someone who had an insurable interest when the contract was made.
• What counts as insurable interest.
• Close relatives by blood or law qualify through love and affection.
• Other people need a lawful and substantial economic interest in the insured's continued life. An interest that would arise only from, or grow larger because of, the insured's death does not count.
• Trusts. A trust may not procure or hold a policy on someone's life unless each trust beneficiary either has an insurable interest or is a charitable, benevolent, educational, or religious institution designated irrevocably.
• Remedy. If benefits are paid under a contract made in violation of these rules, the insured, or the insured's executor or administrator, may sue to recover the benefits from whoever received them.

The settlement chapter adds a disclosure duty. If a broker or provider is a party to a plan to originate, renew, or continue a policy for the purpose of the settlement business, before or during the policy's first 5 years, the broker or provider must fully disclose the plan to the insurer.

This disclosure is a duty. It does not grant permission. Disclosing a plan does not make an improperly originated policy lawful, and it does not waive the five-year restriction or any other requirement.

Compare two cases.

• Case A: lawful later sale. Pat bought a policy on Pat's own life 9 years ago to protect Pat's children. Pat's needs have changed. Pat sells it through a licensed broker, with the full disclosures, escrow, and a rescission right. This can be a lawful settlement.
• Case B: stranger-originated policy. An investor group approaches Quinn, 79, and offers a cash payment if Quinn will let them apply for a large policy on Quinn's life. The policy will be held in a trust whose beneficiaries are the investors. The investors have no interest in Quinn's continued life. They profit when Quinn dies.

In Case B, the trust beneficiaries lack insurable interest, so the arrangement violates Nevada's insurable-interest law at the start. A settlement provider involved in the plan would owe the insurer full disclosure, but disclosure would not cure the problem. If the arrangement involved knowingly concealing material facts on the application, it could also fall under the fraud provisions.

What decides the answer is when and why the policy began, and who held the insurable interest at that time. A later sale with every settlement protection followed does not change how the policy originated. The tempting mistake is to think a clean transfer excuses an improper start.

Check 10. A fictional provider tells an insurer in writing: "We arranged for this policy to be issued last year so that we could buy it." Does this written disclosure make the arrangement acceptable?

Answer: Explanation

No. The provider met its duty to disclose, but disclosure is not permission. Two separate problems remain:

• The policy's origin must still satisfy the insurable-interest rules.
• The policy is only one year old, so a sale is barred by the five-year restriction unless a listed exception applies.

Independent practice

Try each question before opening the answer.

Question 1. A fictional fraternal pays its full-time salesperson a salary plus a bonus for every certificate sold. Is that salesperson exempt from licensing?

Answer: Explanation

No. The salaried-employee exemption requires that substantially all of the person's work be something other than soliciting the public, and that the person receive no pay that depends on business obtained. A full-time salesperson with per-sale bonuses fails both conditions.

Question 2. All parties sign a settlement on Day 0. The proceeds arrive on Day 35. On Day 58, the viator gives notice and repays everything owed. Is the rescission effective?

Answer: Explanation

Yes. Thirty days after Day 35 is Day 65, and sixty days after signing is Day 60. The window closes at the shorter of the two, Day 60. Both the notice and the full repayment happened by Day 58, inside the window.

Question 3. A broker owns a provider company and wants to send a client's policy to that provider. The broker plans to disclose the ownership. Is that allowed?

Answer: Explanation

No. A broker may not knowingly deal with a provider that it controls, that controls it, or that is under common control with it. This is a prohibition. Disclosing the relationship does not make it permitted.

Question 4. A fictional owner's policy is 4 years old. The owner's spouse died last year. May the owner sell the policy?

Answer: Explanation

Yes, with independent evidence of the spouse's death. The death of the owner's spouse within the five-year period is a listed event. The evidence is submitted to the insurer with the transfer request.

Question 5. A provider receives the insurer's acknowledgment of the transfer on a Monday. Assuming no holidays, what is the latest day the viator may be paid on time? What happens if payment is late?

Answer: Explanation

Thursday, which is 3 business days after Monday. If payment is late, the viator may void the settlement for lack of payment, until payment is offered and accepted.

Question 6. A fictional purchaser receives the required disclosures on a Tuesday. How long does the purchaser have to cancel the purchase agreement?

Answer: Explanation

Three business days after receiving the disclosures. That is through Friday, assuming no holidays. This is the purchaser's right, and it is separate from the seller's rescission period.

What to remember

Fraternals

• A fraternal is nonprofit, has no capital stock, serves members and their beneficiaries, uses a lodge system with ritual, and is governed by elected representatives.
• Every fraternal agent must be licensed. The only exemptions are salaried non-sales staff without production-based pay, and members who write no contracts and recruit only incidentally for prizes or nominal money.
• The society is exempt from most taxes, but still pays the commerce tax, real property tax, and office equipment tax.

Settlements

• A settlement sells a policy's death benefit or ownership for less than the expected death benefit. In Nevada, the viator is a Nevada owner or certificate holder and does not have to be ill.
• Terminally ill means death is reasonably expected within 24 months. Chronically ill means unable to perform two activities of daily living, needing supervision because of cognitive impairment, or a similar federally determined disability.
• The broker represents the viator exclusively and owes a fiduciary duty. The investment agent represents the provider and may not know or contact the viator or insured.
• Providers, brokers, and investment agents need a license. A natural person who has held a life producer license for at least one year, in good standing, may act as a broker or investment agent by registering within 30 days. That exception never covers providers.
• The five-year restriction is lifted by a group conversion totaling at least 60 months, or by independent evidence of one of the eight listed events.
• Seller disclosures cover representation, alternatives, possible tax, creditor, and benefit effects, lost policy rights, every offer, and broker compensation. Purchaser disclosures cover no return until death, no guaranteed rate, illiquidity, premiums and fees, and contestability.
• At closing, proceeds go into escrow within 3 business days of receiving the documents, and the viator is paid within 3 business days after the insurer's acknowledgment. Late payment lets the viator void the settlement.
• The seller's rescission period ends at the shorter of 60 days after signing or 30 days after receiving the proceeds. Rescission requires both notice and full repayment within that period. If the insured dies during the period, the settlement is rescinded and repayment is due within 60 days of death.
• Health check-ins are limited to once every 3 months if life expectancy is at least 1 year, or monthly if it is less. Sharing the insured's identity generally requires prior written consent or another listed exception.
• Ads are judged by overall impression. Words like "safe," "guaranteed," "high yield," and "tax deferred" are banned, and a refund offer does not cure a misleading ad. Fraud is a category D felony, and administrative fines run up to $1,000 per violation.
• A policy must have proper insurable interest when it is made. Disclosing an origination plan to the insurer does not grant permission, and a lawful later sale does not cure an improper start.

Review: Check authority to act and the policy's age

• Part 4: Licensing and the life producer exception
• Part 5: The five-year restriction