Senators Raise Concern Over Loosening Insurable Interest Laws
Two members of the Senate Finance Committee have raised concerns about legislation being considered in various states that may weaken state insurable interest laws to the point they will no longer serve any meaningful purpose.
In a letter to American Council of Life Insurers President Frank Keating, Sens. Gordon H. Smith, R-Oregon, and Kent Conrad, D-N.D., 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 assist third-party investors in purchasing life insurance policies on the individual from one insurer and also 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 continue.
In exchange for their investment, the third-party investors receive a substantial portion of the death benefit when the insured individual dies, the senators say. Meanwhile, they add, the insureds family may receive nothing while the charity receives 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 persons death run counter to good public policy and important life insurance principles, they say.
In a letter responding to the senators, Keating says ACLI strongly opposes efforts to expand insurable interest laws to permit unrelated third-party investors to receive life insurance death benefits.
Opposition from the industry, he says, blocked legislation from being enacted in Alabama, Florida, Maryland, Oklahoma and South Carolina.
ACLI, he adds, is actively opposing legislation pending in Louisiana and New York.
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.
Reproduced from National Underwriter Edition, June 11, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.