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LISA Weighs In On Insurable Interest

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M. Bryan Freeman, president of the Life Insurance Settlement Association board, says changes to insurable interest laws should not be disguised as changes in life settlement law.

Freeman made that statement as LISA, Orlando, Fla., released a position statement on insurable interest.

LISA “supports the long-standing concept of ‘insurable interest’ and the requirement that the policyholder has an insurable interest in the insured’s life at the time a life insurance policy is issued,” LISA says in the position statement. “This concept protects insureds, policy owners, beneficiaries, life insurance companies, life insurance settlement companies and provides integrity to life insurance products.”

LISA “is and always has been opposed to investor-initiated life insurance transactions that are intended to circumvent insurable interest law,” LISA says.

“Legitimate premium finance loan transactions can be a useful means by which the costs of paying for life insurance can be properly financed,” LISA adds. But LISA says it “opposes loans that attempt to use the life settlement transaction to validate illegitimate premium financing transactions.”

Although LISA supports compliance with insurable interest laws, “we don’t believe the settlement law is the appropriate place to deal with these issues,” says LISA Executive Director Doug Head.

Moreover, despite all the talk about insurable interest law, there has not been a demonstrated need to look into the issue, Head says.

If there is a decision to explore the issue, specific problems should be addressed, Head says.

If the concern is about alleged abuses of the insurable interest laws, then address those abuses, or, if the concern is about alleged abuses of premium finance laws, address those abuses, Head says.

In February, a coalition of insurance industry groups said it would oppose state legislation based on a viatical settlement model law developed by the National Association of Insurance Commissioners, Kansas City, Mo., unless states close what the groups say are loopholes that permit investors without traditional insurable interests in the lives of individuals to initiate coverage on healthy older people and fund the premium payments.

The coalition includes the American Council of Life Insurers, Washington; the National Association of Insurance and Financial Advisors, Falls Church, Va.; the Association for Advanced Life Underwriting, a NAIFA affiliate; and the National Association of Independent Life Brokerage Agencies, Fairfax, Va.

The NAIC is planning a public hearing in New York in May to discuss the issue of insurable interest and how it is affecting the life insurance industry.