Regulators in Texas, Georgia, and North Carolina have warned agents to be careful when recommending so-called zero premium life transactions – or those with names such as “Estate Maximization” or “No-Cost-to-the-Insured” policies. These are forms of stranger-owned life insurance, and may potentially involve insurance code violations. The Texas Department of Insurance identified three red flags that should trigger special due diligence:

  • When another person or entity purchases insurance on a client’s life in exchange for an immediate lump sum payment or a partial payment of the policy’s face value to beneficiaries upon the insured’s death.
  • When a person or entity solicits or sells a client a life insurance policy for the sole purpose of selling the policy to a viatical or life settlement provider.
  • When the agent is materially involved in a transaction that leads to the purchase of life insurance for the above purposes.

The Georgia Insurance and Safety Fire Commissioner has warned its agents about a zero-cost solicitation that offer to pay agents a fixed fee of $250 for each “final expense” or “final arrangement” whole or universal life policy referred to and bought by an unnamed insurance company. The department has opened an investigation to determine whether these solicitations violate state statutes and regulations.

Similarly, in North Carolina, the insurance commissioner has advised agents to use caution regarding “zero premium life” solicitations until the department can review the offering in greater detail.

Bottom line: given the mounting regulator interest and the question of whether such deals involve a legitimate “insurable interest,” agents may want to think twice about recommending such transactions to their clients.

What “red flags” are affecting your business? Send your comments to the National Ethics Bureau at redflags@ethicscheck.com.