Life Exchange, Inc - Indicate by check mark whether the registrant...

Life Exchange, Inc - Recent Material Event

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The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 15, 2008 was $25,944,000. This valuation is based on the closing sale price of common stock as quoted on the OTCBB on September 15, 2008 ($1.60). This calculation does not reflect a determination that persons are affiliates for any other purposes.

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LIFE EXCHANGE, INC.

FORM 10-K

INDEX

		Page
PART I

Item 1.	Business	1
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	N/A
Item 2.	Properties	12
Item 3.	Legal Proceedings	12
Item 4.	Submission of Matters to a Vote of Security Holders	12

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data	16
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	18
Item 9A.	Controls and Procedures	18
Item 9B.	Other Information	19

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	19
Item 11.	Executive Compensation	20
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	21
Item 13.	Certain Relationships and Related Transactions, and Director Independence	21
Item 14.	Principal Accounting Fees and Services	22
		22
PART IV

Item 15.	Exhibits and Financial Statement Schedules	22

Signatures		24

PART I

This annual report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about the Company, us, our future performance, our beliefs and our Management's assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict or assess. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the filing of this Form 10-K, whether as a result of new information, future events, changes in assumptions or otherwise.

Unless the context otherwise requires, throughout this Annual Report on Form 10-K the words “Life-Exchange”, “Company,” “we,” “us” and “our” refer to Life Exchange, Inc. and its consolidated subsidiaries.

ITEM 1. BUSINESS

Overview

On January 19, 2005 (“date of inception”), Life-Exchange, Inc. (“the Company”) was organized under the laws of the State of Delaware as a corporation. Life-Exchange, Inc. was established for the purposes of servicing the life settlement industry by creating an on-line business-to-business exchange platform, which will facilitate the brokering of life insurance policies in the secondary market. On January 29, 2006, the Company began to trade publicly under the name Life Exchange, Inc. (OTC pink sheets: LFXG.PK).

Our Products and Services

We are an Internet-based, business-to-business exchange for the life settlement industry. By providing a secure, efficient, and neutral electronic trading platform specifically designed for life settlements, we address many of the inefficiencies and difficulties currently facing the industry.

On the sell side of the transaction process, licensed life settlement brokers, on behalf of the policyholders, register and submit to us information and documentation on life insurance policies which they are seeking to sell. We provide brokers a means by which to shop their client's policies to the entire community of buyers and sell them to the highest bidder. Our automated listing and auction processes encourage bidding on policies as it allows more buyers into the marketplace, and thus, we help to create greater value for policy owners.

By selling the policy, the policyholder/insured receives an immediate cash payment to use as he or she wishes. The buyer takes an ownership interest in the policy at a discount to its face value and receives the death benefit under the policy when the insured dies.

On the buy side of the transaction process, licensed life settlement providers register and list the criteria that they use in evaluating the feasibility of purchasing life insurance policies. To that end, we provide a cost effective means to sort and filter through thousands of policies in minutes - not months; thereby allowing providers to focus on just those policies most appropriate to their needs.

After a policy has been registered and submitted to auction, the policy enters a preview period which allows all potential buyers the opportunity to underwrite the policy. After this preview period, the policy enters a live auction period where providers are able to bid against each other for the right to purchase the life insurance policy in a real-time, online auction.

At such time that a provider locates and successfully bids on a life insurance policy, the provider then negotiates and enters into a contract with the broker. We do not participate in that negotiation. We generate revenue based primarily on transaction fees. Our fee structure is designed to provide both brokers (sellers) and providers (buyers) with a compelling cost justification to use Life-Exchange as their primary means to execute life settlement transactions.

Fee Structure

Our business model is based primarily on revenue streams generated via various transaction fees associated with successful policy auctions. Our fee structure is designed to provide both sellers and buyers with a compelling cost justification to use Life-Exchange as their primary means to execute life settlement transactions. Transactions fees are based on a percentage of the face amount of the life insurance policy. This fee arrangement is non-commission based and therefore it allows us to remain neutral in a life settlement transaction as we are not incentivized by either a high or a low sales price. Furthermore, because of our role in the life settlement transaction and as validated by the neutrality of our fee structure, we do not represent or negotiate on behalf of the policy owners and accordingly do not have a fiduciary responsibility to the policy owner as a life settlement broker would.

In addition to the Transaction Fees described above, Life-Exchange also generates News Distribution Fees. The secondary life insurance market is a niche marketplace with a unique blend of participants. And while this marketplace is experiencing tremendous growth, it is still difficult to target the most active firms and individuals. To address this need, we maintain a large database of influential readers focused on life settlements. In order to monetize this subscriber base, we provide a news distribution service. For a fee, we will distribute press releases to our subscriber base. The news distribution fee ranges from $500 to $2,000 per press release depending on the specific nature of the press release.

The Life-Exchange Automation

While the majority of the life settlement industry is backed by technologically sophisticated, Fortune 500 financial institutions, the technological sophistication of the life settlement industry itself is antiquated and highly inefficient. The majority of policy transactions are labor-intensive, cumbersome and disorganized undertakings. There is significant duplication of work, inappropriate policy transactions, miscommunication and poor follow through. All of these factors contribute to an unproductive and inequitable marketplace.

We have automated and modernized the life settlement industry by introducing buyers to sellers (and vice versa) in a virtual, online marketplace. Our features and functionality are specifically designed to improve regulatory compliance, increase customer value, reduce transaction costs, create new revenue models, and add efficiency to an inefficient market.

With our web-based document management features and scalable database, we greatly assist clients by removing the confusion caused by different employees making changes to the same documents and not communicating the changes explicitly. Brokers and providers have access to the correct documents, and the ability to make and communicate changes, 24/7 from anywhere via secure internet connection. Each client's employee's responsibilities and completed work can be tracked using the audit feature built into our products, ensuring accountability.

Of particular importance to our industry, is the fact that the transfer of medical information requires adherence to the compliance procedures of the Health Insurance Portability & Accountability Act ("HIPAA"). In order to ensure compliance with the laws regulating the transmission of medical information, especially in electronic format, we offer all members a secure hosting center to store, retrieve, and exchange medical data in a manner that maintains compliance with HIPAA and state regulations.

In addition to the above factors, there is a significant influx of institutional capital entering the life settlement industry and the pressure to place this capital continues to increase. Automating the Life-Settlement transaction process and allowing more buyers and sellers to transact business through a single, highly efficient electronic exchange will greatly improve value for both buyer and seller by bringing greater liquidity to the life settlement marketplace. Life settlement brokers benefit by having equal and greater access to potential buyers, ensuring their clients receive the highest bids for their policies while maintaining compliance with stringent state-by-state regulations. Providers benefit by having access to more suitable investment opportunities, and are thus able to place their capital more rapidly and with greater efficiently, thus increasing their internal rate of return.

Intellectual Property and Patents

On March 31, 2006, David C. Dorr, our president, assigned his rights in a Patent pending application for Letters Patent of the United States filed July 21, 2004, U.S. Patent Application No. 10/895112. Said patent relates to our processes described herein.

Company History

On July 7, 2006, the Company entered into a note agreement with Vantage Group Ltd. to provide $300,000 of additional financing (“Note 1”). The terms of Note 1, as modified by subsequent amendments, provide for 7% interest payable at maturity. Note 1 is unsecured and matures on April 15, 2010 with quarterly interest installments due through April 15, 2010. Note 1 also provides Vantage with conversion rights based on us attaining certain performance criteria as follows. The Holder of this Note 1 is entitled, at its option, to convert the principal amount of Note 1 or any portion thereof, together with accrued but unpaid interest, into shares of our common stock based on attaining certain performance criteria measured during December, 2006. We did not meet the performance criteria and accordingly, no shares were converted.

On April 2, 2007, we entered into a note agreement with Vantage Group Ltd. to provide $150,000 of additional financing (“Note 2”). The terms of Note 2, as modified by subsequent amendments, provide for 7% interest payable at maturity. Note 2 is unsecured and matures on April 15, 2010. Note 2 also provides Vantage with conversion rights based on us attaining certain performance criteria as follows. Note 2 may be converted into shares of our common stock at (i) $0.10 or (ii) fifty percent (50%) of the three lowest closing prices of the Stock on the Pink Sheets (or such other principal market or exchange where the Common Stock is listed or traded at the time of conversion) immediately preceding the date of conversion.

On August 2, 2007, the Company was advanced an additional $5,000 under the same terms as Note 2.

On September 27, 2007, the Company formed LFX Insurance Services, LLC (“LFXIS”) a Nevada limited liability corporation as a wholly-owned subsidiary. LFXIS was formed to process “structured finance” transactions related to the Company’s core life settlement business. Structured finance transactions involve an extension of the services provided to customer base for customer driven transactions executed through the Company’s exchange platform. Structured finance transactions involve utilizing the skill sets of the Company’s personnel to both advise and structure an appropriate transaction that accommodates the goals of the parties involved. The Company incurred minimal expenses in establishing the subsidiary.

In July 2008, the Company formed four additional subsidiaries to facilitate its plans to further expand its service offerings. Filings with the State of Nevada began on June 3, 2008, however the organization activities were not completed until July 2008. None of these subsidiaries were complete and operational or record any transactions as of June 30, 2008. The newly formed subsidiaries are as follows:

LFX Brokerage LLC was formed to facilitate deeper market penetration into life settlement sell-side participants. This entity will hold life settlement brokerage licenses and life insurance general agency licenses allowing us to offer expanded services as they relate to our core business of operating a life settlement exchange. These licenses also give us the flexibility to interact directly with policy owners and more efficiently address their market needs.

LFX Acquisitions LLC was formed to facilitate deeper market penetration into life settlement buy-side participants. This entity will hold life settlement provider licenses and provide better market access to financial institutions like banks and pension funds to our life settlement exchange. This entity will also allow us the ability to provide ongoing asset servicing to clients that require these services.

LFX Capital Markets LLC was formed in anticipation of further regulatory developments that could bring greater oversight by FINRA to the life settlement market place. This entity will be licensed as a broker/dealer and will also be designed for providing trades in more advanced structured life settlement products that will be classified as securities. Having a broker/dealer license will also allow us to accept variable life insurance contracts, a sector of the market that we have not yet tapped.

LFX Trading, LLC was formed to hold all the technology related to our life settlement auction platform as well as the intellectual property we will be developing related to our electronic trading platform. This new entity will ultimately be responsible for receiving all transaction fees as they relate to auctions or trades through our systems.

We operate two websites: www.life-exchange.com and www.life-exchange.net.

The Viatical and Life Settlement Industry

A Viatical and/or Life Settlement (herein referred to as a "Life Settlement") is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. The insurance industry generally uses the term Viatical Settlement to refer to a transaction involving the terminally or chronically ill insured and the term Life Settlement to refer to a transaction involving an insured who is not terminally or chronically ill, but generally over the age of sixty five (65).

The U.S. secondary market for life insurance policies has experienced phenomenal growth over the past several years. Life settlement buyers, also known as “providers”, purchase policies from policyholders for immediate cash settlement. Providers will purchase life settlement policies on their own behalf as well as on the behalf of various investors including both domestic and international banks, hedge funds, and private equity firms.

Once a provider acquires a policy, the provider continues to pay the policy premiums until the death of the insured, at which time they collect the policy's proceeds. Some life settlement providers negotiate directly with policyholders, but the majority of Life Settlement transactions are conducted through a life settlement broker. Most states require providers to be licensed in the states in which they purchase policies. Many providers are well-financed by large institutional investors. Not only does this institutional backing provide a secure funding source for secondary market transactions, but it also provides the highest degree of consumer protection with regard to privacy and confidentiality.

Life settlement sellers, also known as “brokers”, act on behalf of the policyholders in order to secure the highest price from the sale of the policyholder's life insurance policy. Life settlement brokers work with the insured, the policy owner, general agencies, life insurance agents, attorneys, and/or financial planners.

In an attempt to secure the highest price for a policyholder, brokers will typically present a life insurance policy to multiple providers. Brokers are required to collect and prepare critical policy information and medical records on the insured for use in evaluating the value a policyholder's life insurance policy.

An important industry group is the Life Insurance Settlement Association (LISA). This industry association promotes self-regulation of the industry, and advises and recommends regulations to governing bodies. They also lobby for new laws and regulations to help protect the consumer and keep fraud out of the industry.

The Life Settlement Market and Competition

The life settlement industry developed out of the viatical industry which began in the late 1980s as large numbers of AIDS patients found themselves coping with the catastrophic costs of a terminal illness. Many had life insurance policies that seemed to be limited or inaccessible prior to the death of the insured. A creative solution was to offer AIDS patients; a lump sum payment of cash greater than their cash surrender value, in exchange for transferring the ownership and beneficiary of a policy. Viewing a life insurance policy as a financial asset which could be transferred for value had begun and unfortunately, as with many new financial concepts, lack of regulation lead to several incidences of fraud and other improprieties.

Over the past several years the market has evolved into a multi-billion dollar industry, which is heavily regulated and institutionally backed. The demand driving the growth of this product has been the rapid increase in the senior population, constantly changing estate planning needs and most profoundly the awareness that these insurance policies can be sold on a secondary market as financial instruments to institutionally-backed buyers.

We are aware of one direct competitor, -- LexNet (www.lexnet.com) -- that provide consumers with the ability to auction their life insurance policies. LexNet was launched in May, 2007 by Cantor LifeMarkets, a division of Cantor Fitzgerald. A primary difference between LexNet and Life-Exchange is that LexNet will not accept policy submissions directly from producers. Rather, access to LexNet is exclusively controlled through a select group of Master Agencies. Regardless of whether or not an insurance agent is part of the select Master Agency’s network, they must still work through a Master Agency, which is likely to be seen as an extra fee layer by agents, further diluting the agent’s commission and potentially disinter mediating the relationship between the agent and his end clients. Life-Exchange on the other hand, is open to any life settlement broker, general agency, agent, or master general agency which is capable of meeting our membership requirements.

As another form of indirect competition to life settlements, the life insurance industry has responded with policy features offering various pre-death, cash benefits (sometimes called accelerated death benefits). While in some cases accelerated death benefits may compete with life settlements, we do not expect the availability of accelerated death benefits to affect the life settlement market significantly at this time. The availability of accelerated death benefits is generally more restricted than life settlements. For example, policies often limit such benefits to persons who have a life expectancy of less than one year, in contrast to life settlements that are usually available to persons with life expectancies of two to 15 years. Life settlements generally offer sellers a greater dollar amount than they would receive under accelerated death benefit provisions.

Finally, access to capital, the insurance industry's addition of pre-death cash benefits, law enforcement pressure on companies operating illegally, and increasing government regulation have all contributed to a stabilization in the number and sophistication of life settlement companies, both those purchasing for their own accounts and those who act as agents for purchasers.

Sales & Marketing

Since our public launch on April 20, 2006, we have aggressively focused on acquiring as clients the top life settlement sellers and buyers in our industry. As of June 30, 2008, we have agreements with over 30 suppliers of life settlement policies, including life settlement brokers, general agencies, and master general agencies. On the buy side, we have agreements in place with over 40 buyers of life settlement policies, including domestic life settlement providers, as well as both domestic and international banks, hedge funds, and private equity firms.

A primary theme of our user agreements is that we are an online venue for indications of interests to buy and sell, and that the site is only an online communications medium to facilitate registered buyers and registered sellers to exchange information relating to proposed Life Settlement Transactions; such life insurance policies transactions are completed off-line, outside of the site.

Life-Exchange auction participants, both on the buy-side and sell-side, pay a transaction fee that ranges from 0.25% to 0.50% of the face value of a policy.

All buy-side and sell-side member contracts are identical with regards to the material rights and obligations of both parties and include:

·	Contracts have no fixed contract length and parties are not obligated to use the exchange, post policies, or provide a minimum level of business to the exchange.

·	Life-Exchange members may terminate this Agreement at any time upon thirty (30) days advance written notice of termination provided to the other party.

·	Life-Exchange members must comply with stringent confidentiality and privacy obligations, including those related to the HIPAA,

·	Life-Exchange members are responsible for paying for any life expectancy reports that they order through Life-Exchange.

·	Life-Exchange members must at all times

§	comply with all applicable laws and regulations applicable to its offer to purchase, solicitation to sell, or purchase of, Policies in Life Settlement Transactions,

§	obtain and maintain in good standing all licenses and permits that Broker/Provider may be required to hold under applicable laws and regulations.

·	Life-Exchange members agree to a non-circumvent period where neither party shall, directly or indirectly, purchase or sell a Policy listed on the exchange or make any offer to purchase or sell any such policy for a period of 1 year

Over the next twelve months, management's strategy is to continue with its sales and marketing strategy of focusing efforts on establishing a “footprint” nationally with the industries top tier firms.

Our primary marketing efforts will continue to include:

·	Taking advantage of our favorable position within the Life Settlement industry to secure exclusive industry alliances thereby ensuring long term deal flow in the form of long term use of our web-based exchange platform.

·	Use our strong industry contacts within the life settlement community to promote the usage of Life-Exchange as an industry standard.

·	Implement website features and functionality that create user retention.

·	Continual development of products and services that anticipate the market's evolution particularly in regards to the regulatory landscape.

·	Enhancements and modifications to our website that differentiates our product and services by offering industry specific tools and functionality that will become and remain the industry standard

Research & Development

Product and development costs consist of the costs to develop and operate the online exchange platform's web based application and transaction database and are expensed as incurred.

We have outsourced the development of our web application to Epiq Technologies of San Diego, California. Epiq Technologies was chosen after an exhaustive search for the most appropriate business-to-business exchange platform and software developer. Our web based application is based upon industry leading technology which has provided us with a common, secure, and scalable infrastructure for which to base future development. Our web application was publicly launched on April 20, 2006 and to date, our developer has delivered all milestones ahead of schedule.

Data transmitted between our clients and our Web servers is via the industry standard Secure Sockets Layer (SSL), which is a mechanism to secure Internet traffic so that it cannot be intercepted. Life-Exchange will continue to use and update its platform with the most advanced security measures available.

Our ongoing research and development will focus on modifications and enhancements to meet the changing needs of our users, as well as addressing regulatory issues encountered by the industry. This proactive approach towards customer satisfaction will include making certain that www.Life-Exchange.com continues to foster:

·	A customer-first approach

·	Superior and efficient execution of all web site functionality, processes, and procedures.

·	Excellent, easy to access customer support services.

·	Resources to serve both brokers and providers.

·	A comprehensive range of products and services to ensure competitive advantage and to serve current and future customer needs.

·	Fast, reliable, and accurate functionality.

·	A highly credible site which offers private and secure transactions

Equipment

With respect to equipment requirements, we employ a strategy of leasing all of its technological hardware and software requirements through industry leading vendors. As such, we expect no significant equipment purchases over the next 12 months.

Staffing

We operate around a core group of highly skilled individuals with an extensive knowledge and understanding of the life settlement industry. Besides a nominal administrative staff to support this core group, we plan to outsource all staffing activities not directly related to our core capabilities in the life settlement industry, including such activities as software development, marketing, investor relations, and compliance. Based on this outsourcing strategy, we anticipate no significant staffing level increases within the next twelve months. As of June 30, 2008, we have 8 employees, consisting of 6 full time employees, and 2 part time employee, none of whom are represented by a labor union. We consider our employee relations to be satisfactory.

Government Regulation

Although our services do not require us to be licensed under federal or state law as a provider, broker or otherwise, we believe these laws and regulations have generally had a positive effect on the industry and on our ability to compete in the life settlement marketplace.

Currently the life settlement industry is regulated on a state-by-state basis, and at this time almost all states regulate life settlement transactions. Depending on the state, different licenses may be required for viatical and life settlements transactions, as well as for life settlement brokers and life settlement providers. Of those states that regulate the life settlement transactions, most require both the Viatical/Life Settlement Broker and the Viatical/Life Settlement Provider to be licensed.

The foundation for these regulations is based largely from the NAIC Viatical Settlements Model Act (the "Model Act"), which act encompasses a model law and regulations promulgated by the National Association of Insurance Commissioners (the "NAIC"). Most states have now adopted some version of this model law or another form of regulation governing in some way viatical or life settlement companies or both. These laws generally require the licensing of providers and brokers, require the filing and approval of settlement agreements and disclosure statements, describe the content of disclosures that must be made to potential viators and/or life settlors, describe various periodic reporting requirements for settlement companies and prohibit certain business practices deemed to be abusive.

In 1996, Congress passed the Health Insurance Portability & Accountability Act ("HIPAA"). The purpose of HIPAA is to prevent fraud in the health care industry and to protect confidential patient information. HIPPA standardizes and provides enforcement mechanisms for ROI rules and guidelines to protect personal healthcare information. HIPAA effects entities involved with electronic health care information - including health care providers, health plans, employers, public health authorities, life insurers, clearinghouses, billing agencies, information systems vendors, service organizations, universities, and even single-physician offices. The final version of the HIPAA Privacy regulations was issued in December 2000, and went into effect on April 14, 2001. A two-year "grace" period was included; enforcement of the HIPAA Privacy Rules began on April 14, 2003.

Licensing in Florida

Florida regulates both viatical and life settlements pursuant to the Florida Viatical Settlement Act set forth in Florida Statutes Sections 626.991--626.99295 (the "Florida Act"). The Florida Act makes no distinction between viatical and life settlements and refers to all settlements as viatical settlements.

The settlement process begins when the policy owner executes a viatical settlement application and provides authorization to the insured's attending physician and the issuing insurance company to disclose confidential information pertaining to the insured's health and insurance coverage. This information is necessary for a buyer to evaluate the policy for potential purchase. If the policy owner is not also the insured, both the viator and the insured typically will be required to review and sign the application. In addition to the policy owner's execution of the application documents, he or she is also required to provide some form of photo identification, a copy of the life insurance policy to be sold, and a copy of the application for the policy. As a general rule, policy owners are not required to submit to a medical examination as part of the application process.

A viator is the owner of a life insurance policy, who seeks to sell a policy. The insured may or may not have a catastrophic or life threatening condition.

A viatical settlement provider is a person or company who purchases a life insurance policy from a viator A viatical settlement provider must be licensed by the Florida Department of Financial Services (the “Department”).

A viatical settlement broker is a person who negotiates an agreement between a viator and a viatical settlement provider. The broker has a fiduciary responsibility to act according to the viator’s instructions and in the viator’s best interests and must be licensed by the Department. Brokers typically work closely with policy owners and collect their commissions from providers after the contract has been executed. After October 1, 2006, a person must be licensed with the Department as a life agent in order to act as a viatical broker.

An escrow agent or trustee is the party who holds the documents and the money until ownership rights of the policy have been transferred from the viator to the viatical settlement provider. In some cases they retain investor’s funds until they have been placed on a life insurance policy and could be the party responsible for insuring payment to the investor. Escrow agents or trustees are not licensed by the Department.

A viatical settlement investment, as of July 1, 2005, is subject to the Florida Securities and Investor Protection Act. For an investor, this means full disclosure and access to company information. In addition, a determination of the investment’s suitability for the investor would have to be made after considering the investor’s financial and tax status, and the investor’s investment objectives. It also means that the viatical settlement investment must either be registered with the Department or exempt from registration. In addition, the person offering or selling the viatical settlement investment must be licensed with the Department to sell these securities.

In order to make their medical records available to third parties in the viatical settlement process, insured's must authorize their physicians and other health care givers, in writing, to release their private medical records.

The medical release allows the viatical settlement broker to obtain current medical records from the insured's physician. At a minimum, two years of records are required. These records are then provided to a review company that specializes in viatical and life settlement mortality profiles for a determination of an estimated life expectancy. Once a medical underwriter has obtained all of the policy owner's medical records, it can generate a preliminary estimate of the insured's life expectancy and thereafter issue a final report. The report is then used by the viatical settlement provider to determine if the offered policy comes within its underwriting guidelines for purchase.

The evaluation of a viatical settlement focuses on the specific terminal illness with which the insured has been diagnosed. In the case of a life settlement, however, where there is no terminal illness, other factors must be examined in order to determine estimated life expectancy.

Once the parties agree on a price, they will enter into a viatical settlement contract and other related agreements necessary to close the transaction. The viatical settlement contract contains the price to be paid to the policy owner for the policy and other important terms and conditions of the sale, including those dealing with mandatory disclosures, the policy owner's right to rescind the contract, and post-closing contact with the insured for health status updates. Other related forms typically include an escrow agreement with the entity that will hold the funds payable to the policy owner, the forms from the issuing insurance company necessary to record the change in the policy ownership and beneficiary(ies), releases for execution by the existing policy beneficiary(ies), a power of attorney and funding instructions.

The Florida Act defines a viatical settlement contract as one in which the provider pays compensation or value to the policy owner in an amount less than the expected death benefit of the subject insurance policy, and the policy owner in return assigns, transfers, sells, devises, or bequeaths ownership of all or a portion of the subject insurance policy to the provider. The contract can also include a loan secured primarily by a life insurance policy, or a loan secured by the cash value of the policy, excepting loans made by life insurers to insured under the guidelines of the subject policy.

A viatical settlement contract and the related forms must be pre-approved by the State of Florida Office of Insurance Regulation. By statute, the department must reject any viatical settlement contract or related form that is unreasonable, contrary to the public interest, discriminatory, or misleading or unfair to the policy owner. As part of the form approval process, the department requires that each form have a unique number in the lower left hand corner. This approval requirement provides policy owners with a measure of protection in that the department has reviewed the provisions of the viatical settlement contract and related forms and has required the removal of any unfair provisions prior to use of the form.

A viatical settlement purchase agreement is defined as a contract between a purchaser and a party other than the policy owner to purchase an interest in a life insurance policy. This is usually the investment contract between the purchaser and the provider.

As a further condition to a sale, Florida law requires the policy owner to confirm or agree in writing the following:

1.	Consent to the viatical settlement contract;

2.	Represent that he or she has a full and complete understanding of the viatical settlement contract and the benefits of the life insurance policy;

3.	Release his or her medical records; and

4.	Acknowledge that he or she has entered into the viatical settlement contract freely and voluntarily.

Finally, in Florida, all viatical settlement contracts must close in escrow in order to assure that the policy owner is paid. The independent escrow agent's role in a viatical settlement transaction is to receive and hold the executed viatical settlement contract and related documents, including the insurance company forms executed by the policy owner to transfer the ownership of the policy, and to receive and hold the funds transferred from the viatical settlement provider in the amount of the agreed-upon purchase price for the policy. After expiration of the policy owner's fifteen day right of rescission, the viatical settlement provider or its agent begins tracking or monitoring the policy owner's health status.

Florida law requires viatical settlement providers or brokers to provide specific information to policy owners before entering into a viatical settlement contract. Nearly all jurisdictions that regulate viatical settlements require substantially similar disclosures, the purpose of which is to give a person who is contemplating the sale of a life insurance policy basic information that may be material to that decision. Florida requires the following information to be disclosed: