Insurable Interest

One of the issues surrounding stranger-oriented life insurance, is that investors providing life settlements in exchange for being named beneficiaries have no insurable interest in the insured individuals. Insurable interest statutes in most states require an insurable interest (the beneficiary must be related to or financially reliant on the insured in some way) to be in existence when a policy is purchased (hence the naming of a relative as beneficiary for the first couple of years of a policy’s existence).

Therefore, according to Jack Dolan at ACLI, when an uninsured person is approached on behalf of investors, “these arrangements are designed to circumvent state insurable interest statutes.” The insured person also may be laying himself open to charges of fraud from the insurance company that issued the policy.