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Life Health > Life Insurance

ACLI Fights Loose Insurable Interest Laws

By Steven Brostoff

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NU Online News Service, June 9, 2004, 3:02 p.m. EDT, Washington – Life insurers are working to prevent attempts in several states to loosen insurance interest standards, American Council of Life Insurers President Frank Keating says.[@@]

In response to questions raised by 2 members of the U.S. Senate Finance Committee, Keating says the ACLI strongly opposes efforts to expand insurable interest laws to permit unrelated third-party investors to receive life insurance death benefits.

Opposition from the life insurance industry blocked legislation from being enacted in Alabama, Florida, Maryland, Oklahoma and South Carolina, Keating says.

He adds that the ACLI is actively opposing legislation that is pending in Louisiana and New York.

Keating’s letter responds to concerns raised by Sens. Gordon Smith, R-Ore., and Kent Conrad, D-N.D.

In a letter to Keating, the senators say the type of legislation being considered “may weaken state insurable interest laws to the point they will not longer serve any meaningful purpose.”

Specifically, Smith and Conrad say, the state legislation that concerns them is designed to facilitate marketing programs through which charitable, educational and religious institutions work with third-party investors to solicit individuals to participate in investments.

The charitable institution would help third-party investors buy life insurance policies on the individual from one insurer and obtain annuity contracts on the same individual from another insurer, they say.

The income generated from the annuity could be used to pay the life insurance premiums, they say.

In exchange for their investments, the third-party investors would receive a substantial portion of the death benefit when the insured individual died, the senators say. Meanwhile, they add, the insured’s family might receive nothing while the charity received a small portion of the death benefit for participating in the transaction.

“We believe that laws allowing unrelated third-party investors to profit from an unrelated person’s death run counter to good public policy and important life insurance principles,” Sens. Smith and Conrad say.

Keating says in his response that the ACLI shares that concern and is actively opposing expanded insurable interest laws where they have been introduced.

“We firmly believe that life insurance contracts should only be issued to persons with a familial or recognized economic relationship with the insured and should not be merely an investment vehicle,” Keating says.

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