Hawaii is one of the few states where the state estate tax, not the federal one, is still the reason a client owns permanent life insurance — and that single fact changes how an advisor here should handle a policy question. Hawaii decoupled from the federal system and applies its own estate tax at an exclusion of $5,490,000, with graduated rates topping out at 20 percent. A married couple in Kahala or Kailua with a paid-off house, a rental, and retirement accounts can cross that line without ever approaching the federal threshold.
So when a Hawaii client asks whether to keep paying premiums on an old policy, the answer is genuinely less obvious than it is in Nevada or Washington. Sometimes the coverage is still doing exactly the job it was bought to do. Sometimes it was bought to solve a federal exposure that no longer exists and has quietly become a $14,000-a-year expense with no purpose. Telling those apart is advisory work, and it requires the numbers rather than a default.
This guide is organized around the questions a compliance officer or a careful client will actually ask, because those are the questions that determine what belongs in the file. It names the Hawaii regulator, the statutory chapter that governs settlements here, the licensing line for advisors, and the Med-QUEST and cost-of-care figures that constrain a client heading into long-term care.
In This Article
- “Who regulates this in Hawaii, and under what chapter?”
- “Am I acting as an unlicensed broker by raising this?”
- “What does Reg BI require if I never recommend selling?”
- “Does the Hawaii estate tax change the analysis?”
- “What are the Hawaii care and Medicaid numbers I should be planning against?”
- “How do I handle a held-away policy I do not manage?”
- Frequently Asked Questions
“Who regulates this in Hawaii, and under what chapter?”
The regulator is the Hawaii Insurance Division, which operates within the Department of Commerce and Consumer Affairs and is headed by the Insurance Commissioner. The Division licenses producers, reviews forms, examines carriers, and handles consumer complaints. It also administers licensure for the entities that acquire in-force policies from Hawaii owners in the secondary market. Our page on Hawaii insurance department consumer help covers what a complaint or license inquiry looks like from the consumer side.
Hawaii’s insurance code is Hawaii Revised Statutes chapter 431. Viatical settlement regulation in Hawaii is generally found at HRS chapter 431E, which sits alongside the main insurance code as its own article-level chapter. Treat that as the chapter-level pointer and nothing more. Hawaii has amended these provisions and section numbering within the chapter has moved, so pull the current text from the Hawaii State Legislature’s statute site or confirm with the Insurance Division before you cite a specific section in a client memo. Do not lift a section number out of a national industry summary; those are frequently copied from another state’s act and are wrong more often than they are right.
The durable structure, which Hawaii shares with essentially every state that adopted a version of the NAIC model, is this: the acquiring entity must hold a provider license, an intermediary shopping the policy must hold a broker license, defined written disclosures must reach the owner before and at contracting, and the owner receives an unconditional rescission window after funding. Verify a counterparty’s Hawaii license before you introduce a client — see life settlement licensing in Hawaii.
“Am I acting as an unlicensed broker by raising this?”
Almost certainly not, if you keep to education and referral. The definition that matters in most state acts captures a person who negotiates a settlement contract on behalf of the owner for compensation. Explaining that a regulated secondary market exists, describing how buyers price policies, giving a client a list of licensed brokers, and reviewing an offer the client brings back to you are activities that sit on the education side.
The models also contain an express carve-out that advisors should know: an attorney, certified public accountant, or financial planner retained by the owner, whose compensation is not paid by the settlement counterparty and is not contingent on the transaction closing, is generally excluded from the broker definition. Whether Hawaii adopted that carve-out in the same words is a question for the Insurance Division and for your own counsel, not something to infer from a model act.
The tripwire, again, is contingent compensation. A referral fee, a revenue share, or a percentage of proceeds pushes you toward licensed activity and creates a conflict that must be disclosed regardless of the licensing answer.
Registered representatives carry a second exposure. Whether an interest in a settled policy is a security has produced conflicting federal appellate results — the D.C. Circuit held certain viatical interests were not securities under Howey in SEC v. Life Partners, Inc., 87 F.3d 536 (1996), while the Eleventh Circuit reached the opposite conclusion on a differently structured program in SEC v. Mutual Benefits Corp., 408 F.3d 737 (2005). Your firm will likely treat any participation as an outside business activity or a private securities transaction. Get written approval before you act; representatives are disciplined by their own firms over this far more often than by regulators.
“What does Reg BI require if I never recommend selling?”
Reg BI attaches to the recommendations you do make, not to the ones you avoid. The exposure is not “you failed to recommend a settlement.” It is “you recommended surrendering a policy and moving the cash into a managed account, and the file does not show that you considered what the policy was worth to anyone else.”
Regulation Best Interest has applied to broker-dealer recommendations to retail customers since June 30, 2020, and imposes disclosure, care, conflict of interest, and compliance obligations. The care obligation expressly requires consideration of reasonably available alternatives. Investment advisers are not subject to Reg BI but owe a fiduciary duty under the Advisers Act, which the SEC restated in its 2019 standard-of-conduct interpretation. On this topic the two standards land in the same place.
The alternatives worth naming in the file are finite: keep the policy as issued; reduce the face amount to lower the premium; elect reduced paid-up and stop paying entirely; exercise an accelerated death benefit or chronic illness rider the client already owns; surrender for cash value; or obtain a secondary market valuation. Six lines. Our comparison of lapse versus surrender versus settlement is a reasonable client-facing handout for that conversation.
Then record the client’s objective in their own words and the decision they made. If they decline to pursue a valuation, write that sentence down. A documented refusal protects you; an undocumented conversation does not exist.
| Compliance question | Short answer | Where to verify |
|---|---|---|
| Who regulates settlements here? | Hawaii Insurance Division, within DCCA | Division license lookup and consumer services |
| Which statute? | HRS chapter 431 insurance code; viatical provisions generally at chapter 431E | Hawaii State Legislature statute database |
| Do I need a license to discuss it? | Education and uncompensated referral generally no; contingent pay is the tripwire | Insurance Division and your own counsel |
| Does Reg BI apply? | To the recommendation you make, including a surrender recommendation | Firm compliance; SEC 2019 adviser interpretation for RIAs |
| State estate tax? | Yes — $5,490,000 exclusion, graduated to 20 percent | Hawaii Department of Taxation; client’s CPA |
| Medicaid resource limit? | Generally $2,000 single, ABD pathway, as of 2026 | Med-QUEST Division, Department of Human Services |
“Does the Hawaii estate tax change the analysis?”
Frequently, yes, and this is the genuinely Hawaii-specific part of the practice.
Hawaii imposes its own estate tax on the estates of residents and on Hawaii-situs property of nonresidents. The exclusion amount is $5,490,000 — a figure that matched the federal exclusion in 2017 and did not follow federal indexing afterward. Rates are graduated and reach 20 percent at the top of the schedule. Hawaii does not impose a separate inheritance tax. Hawaii’s personal income tax reaches 11 percent at the top bracket, among the highest state rates in the country, which matters for the taxable portion of any settlement proceeds. Confirm current figures with the Hawaii Department of Taxation, and route the specific computation to the client’s CPA rather than performing it yourself — see the Hawaii CPA guide and life settlement taxes in Hawaii.
The practical consequence is that an ILIT-owned policy purchased to provide estate liquidity may still be doing real work for a Hawaii family whose federal exposure is zero. Illiquid Hawaii estates are common: a residence with a very large unrealized gain, agricultural or leasehold interests, a small business. If the estate tax bill has to be paid within nine months and the assets cannot be sold in nine months without a fire-sale discount, insurance is the liquidity. Do not treat “under the federal exemption” as the end of the inquiry here.
The reverse case is equally common and equally worth catching: a policy bought in the 1990s to solve a federal exposure, on a family whose net worth never grew into the Hawaii threshold either, still consuming premium. That policy has no current purpose, and a review is overdue.
“What are the Hawaii care and Medicaid numbers I should be planning against?”
Hawaii’s long-term care market is small, expensive, and geographically fragmented, and that combination drives most of the real decisions.
Semi-private nursing facility care in Hawaii has run in the range of roughly $13,000 to $16,000 per month in recent national cost-of-care surveys, with assisted living meaningfully lower and home health aide rates among the highest in the country. On the neighbor islands the constraint is often availability rather than price — there may be very few licensed beds within a reasonable distance of a family, which is why home and community-based care carries such weight in Hawaii planning. Verify specific figures with the facilities in question; ranges from national surveys should not be used as a projection input without local confirmation.
Hawaii Medicaid is administered by the Med-QUEST Division of the Department of Human Services. For a single applicant under the aged, blind and disabled pathway, the countable resource limit is generally $2,000 as of 2026, with a higher figure where a couple both apply and a separately calculated community spouse resource allowance where one spouse remains at home. These reset annually; confirm before advising. Our Hawaii Medicaid asset and income limits page carries current figures.
The life insurance rule is federal and applies here as everywhere: if aggregate face value across all policies on the individual exceeds $1,500, the cash surrender value of those policies is a countable resource. Below that aggregate, they are excluded. A client with $300,000 of universal life and $52,000 of cash value is holding a countable $52,000 asset. Selling the policy converts it to cash, which is also countable, and giving the proceeds away triggers look-back review with a transfer penalty. This sequencing is not advisory work — route it to an elder law attorney and a Medicaid planner before anything is signed.
“How do I handle a held-away policy I do not manage?”
Scope it explicitly rather than ignoring it. Most claims in this area arise not because an advisor gave bad insurance advice but because a policy appeared on a balance sheet the advisor produced and was then never mentioned again.
The workable approach is a standing annual review field rather than an ongoing monitoring duty: carrier and policy type, current annual premium, and the date of the most recent in-force illustration. If that last date is more than two years old on a universal life or variable universal life contract, request one. Policies funded against 1990s crediting assumptions frequently require substantially higher premiums than the original illustration showed, and neither you nor the client will know until the carrier projects it forward.
Your engagement letter should say which of these you do. If you do not evaluate insurance adequacy, say so plainly. If you will flag a policy that appears at risk and refer the client out, say that instead. Either scope is defensible; ambiguity is not.
Where coverage is trust-owned, the decision moves to the trustee and the standard becomes the prudent investor rule as modified by the instrument. See the trustee duty toward an underperforming policy and coordinate with the Hawaii estate planner guide.
Pine Lake Life Solutions provides education and a free policy review to advisors and their clients. We do not purchase policies, we are not licensed in every state, and nothing here is legal, tax, or investment advice for a particular situation. A review begins with the policy cover page; call (305) 209-7183.
Frequently Asked Questions
Which Hawaii chapter governs viatical and life settlements?
Hawaii’s insurance code is HRS chapter 431, and viatical settlement regulation is generally found at HRS chapter 431E. Section numbering within that chapter has changed across amendment cycles, so confirm current text with the Hawaii State Legislature statute site or the Insurance Division before citing a specific section. Governing law generally follows the policy owner’s residence rather than the carrier’s domicile.
Does Hawaii’s estate tax mean my client should keep the policy?
Sometimes. Hawaii applies its own estate tax with a $5,490,000 exclusion and rates reaching 20 percent, and it did not follow federal indexing after 2017. Families whose federal exposure is zero can still face a Hawaii bill payable in nine months against illiquid assets like real property or a closely held business. That is a real reason to maintain coverage, and it should be tested with numbers rather than assumed either way.
Can I take a referral fee from a Hawaii settlement broker?
Contingent compensation is the activity most state acts treat as brokering, and it requires a license. It also creates a conflict you must disclose under Reg BI or your fiduciary duty. Model act language excludes an attorney, CPA, or financial planner retained and paid by the owner on a non-contingent basis. Confirm Hawaii’s adoption with the Insurance Division, and clear the arrangement with compliance and counsel first.
What are Hawaii long-term care costs in 2026?
Recent national cost-of-care surveys place semi-private nursing facility care in Hawaii in the range of roughly $13,000 to $16,000 per month, with home health aide rates among the highest nationally. On the neighbor islands, bed availability is often a harder constraint than price. Verify figures with the specific facilities under consideration before using them in a client projection.
How does a policy affect a Med-QUEST long-term care application?
If total face value of all life insurance on the applicant exceeds $1,500, the cash surrender value counts toward the resource limit, generally $2,000 for a single applicant as of 2026. Below that aggregate face, policies are excluded. Selling produces cash, which remains countable, and gifting proceeds triggers look-back review and a transfer penalty. Sequence the decision with an elder law attorney before anything is signed.
Should I evaluate a policy I do not manage?
Decide it in the engagement letter rather than case by case. If a held-away policy appears on a balance sheet or plan you produced, a client can reasonably say you were looking at it. A defensible middle course is a standing annual review field capturing carrier, premium, and the date of the last in-force illustration, paired with a written referral when something looks at risk.
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Related Reading
- Hawaii Insurance Department Consumer Help
- Hawaii Medicaid Asset Income Limits
- Life Settlement Licensing Hawaii
- Life Settlement Taxes Hawaii
- Cpa Life Settlement Guide Hawaii
- Estate Planner Life Settlement Guide Hawaii
- Lapse Vs Surrender Vs Settlement
- Trustee Duty Underperforming Policy
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.