Broc Romanek also mentions in his blog today that the Securities and Exchange Commission issued a task force report on life settlement contracts. Among other things, the task force recommends that Congress amend the definition of "security" under the federal securities laws to include life settlements. The task force defines a "life settlement" as "a transaction in which an insurance policy owner sells a life insurance policy to a third party for an amount that exceeds the policy’s cash surrender value, but is less than the expected death benefit of the policy".
California is way ahead of the task force in this respect. In 2000, Senator Figueroa authored legislation, SB 1837, to address the status of life settlement and viatical contracts as securities. The Department of Corporations sponsored this legislation in apparent concern that the courts would conclude that life settlements are not securities.
In California, "securities" are defined in California Corporations Code Section 25019 which contains a long list of financial instruments. Life settlements and fractionalized interest or pooled interests in life settlements are included in the list of securities. Section 25023 defines "life settlement contract" and Section 25010(c) defines who is the "issuer".