For life products whose value relies on external value fluctuation, at what point do they become securities?

The historically low interest rates instated by the Federal Reserve Board to encourage borrowing and spending are not going to be in place forever. Offering nimble products that are able to adapt to changes in the economy are increasingly being seen as assets both to insurers and to their prospective customers.

Increasingly, insurance products are being tied to external circumstances such as market indexes, or, in the case of The Hartford’s new product, the anticipation of higher interest rates in the future.

The Hartford Financial Services Group Inc., Hartford, CT.,(NYSE:HIG) announced on Oct. 4 Hartford Founders Plus, designed to adapt and respond to changing interest rates. The universal life product offers death benefit protection along with two crediting options with the potential to benefit from rising interest rates. It also includes a no lapse guarantee ensuring the death benefit will be paid even if there is no cash value in the policy.

As insurance products depend on financial circumstances out of their control, they run the risk of being viewed as securities by regulatory authorities. The industry is already facing regulatory pressure by agencies such as the Securities and Exchange Commission which seeks to regulate products deemed as having a securities element to them. Insurance companies are quick to point out the differences, however. A spokesman for The Hartford stated that The Hartford’s Founders Plus is definitively an insurance product, but as products become more and fastened to external forces whether it be a rise in interest rates or general market fluctuations the question remains if this issue will be settled by insurers or by federal regulators.