A measure that tightens state law governing the method of buying life insurance policies from consumers will take effect in September after garnering Gov. Ted Strickland's signature Wednesday.

Strickland's OK was the final hurdle for H.B. 404, which amends the Ohio Viatical Settlement Act and is aimed at improving protections for those looking to sell a policy to a third party through a so-called life-insurance settlement.

The Ohio Department of Insurance and others backed the bill because of a perceived increase in settlements arranged for financial gain, but industry opponents claimed the bill overregulated the process.

Life-insurance settlements involve buying an individual's life policy for less than its face value, taking over premium payments until the death of the insured and then collecting the full payout. A viatical settlement specifically involves the terminally ill or elderly selling a policy to pay medical bills or other expenses.

The measure also creates a framework to restrict what's called "stranger-oriented" life insurance. That practice involves an investor persuading someone to buy a policy with the understanding that the investor will take it over after a state-mandated two-year waiting period.

One provision of the amended law, which goes into effect in 90 days, extends that period to five years, primarily in cases not between family members. The new law also requires parties to provide additional settlement-related information to insurers before closing the deal. Insurers must ask specific questions to identify the stranger-oriented transactions and then report them to the insurance department.

Insurance department Director Mary Jo Hudson on Wednesday called the bill a major step toward creating a shared responsibility among the life settlement industry, insurers and the state department.

"I strongly believe that this change to Ohio law will deter (stranger-oriented) transactions from occurring in Ohio," Hudson said in a statement.

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