The Bayou State has issued an explicit list of do’s and don’ts for life insurers that want to detect applicants who are involved in illegal efforts to sell policies to investors.
Louisiana Insurance Commissioner James Donelon spells out the rules in Bulletin Number 06-05, on the topic of “Authorized and Unauthorized Questions for Use on a Life Insurance Application.”
In some cases, investors without an insurable interest in the lives of consumers appear to be initiating the creation of life insurance policies for the purpose of settling the policies, Donelon says.
These moves to create stranger-owned life insurance arrangements may violate Louisiana statutes or case law involving insurable interest, prohibition on wager policies, rebating, prohibition on “wet ink” life settlements, premium finance, and usury, Donelon writes in the bulletin.
“Life insurers can and should seek to ascertain whether life insurance applications are legally sound,” Donelon writes.
But Donelon says it is illegal in Louisiana to discriminate against life applicants based solely on the use of premium financing or the intention of the insured to sell a policy to a life settlement company.
In Louisiana, Donelon says, life insurers cannot ask about:
- The intention of the applicant to use a policy as collateral for a loan.
- Whether an applicant has sold an earlier policy through a life settlement transaction.
- Whether an applicant knows about life settlements.
Life insurers looking for illegal SOLI arrangements can ask questions about whether an applicant has:
- Received a cash advance or other inducement to buy the life insurance policy.
- Been offered “free insurance.”
- Agreed to sell a policy to a particular investor.
- Entered into a finance agreement that entitles a lender or investor to a portion of the death benefit above and beyond the repayment of principal and interest on the loan.
Life insurers also can ask about the total amount of life insurance an applicant already has in force, Donelon writes.
A copy of Bulletin Number 06-05 is on the Web at Document Link