Insurable Interest Concerns Mobilize Industry Groups

By Arthur D. Postal and Matt Brady

The life insurance industry is stepping up its efforts to combat the growth of investor-owned life insurance products by creating an industry task force whose goal is to examine practices that neutralize the purpose of insurable interest laws.

The industry’s concern is that proliferation of these practices may prompt the federal government to end or create a ceiling on inside buildup within life insurance, as a result reducing the attractiveness of the product to consumers, especially to high-net-worth individuals.

The task force was created by the National Association of Insurance and Financial Advisors, the Association for Advanced Life Underwriting, and the American Council of Life Insurers.

They said they have been working together for over a year to lobby against the expansion of state insurable interest laws that would facilitate so-called "investor-owned life insurance." IOLI involves charitable organizations and permits third-party investors to acquire interests in life insurance policies that they would otherwise be prohibited from acquiring directly.

But now, they said, the proliferation has become more pronounced through other arrangements that bypass state insurable interest laws that govern the purchase and ownership of life insurance.

These other arrangements include situations in which individuals purchase life insurance with the intention of transferring that insurance to third-party investors a relatively short time later, a spokesmen for the three groups said.

"Such arrangements undermine the intent of state insurable interest laws," said C. Robert Brown Sr., NAIFA’s president.

"Life insurance insurable interest statutes have been enacted across the country to ensure that life insurance is purchased by those with a recognized, pre-existing interest in the life of an insured," Brown said. "This purpose is not accomplished if the intent from the outset is to sell the policy to someone who lacks insurable interest."

Gus H. Comiskey Jr., AALU’s president, added, "We acknowledge that it is not always easy to establish the intent of the policyholder at the time of purchase."

But, he continued, "...our organizations believe that allowing life insurance to be used as a commodity by investors and others who have no relationship to an insured person leaves life insurance open to potential abuse."

Frank Keating, ACLI’s president and CEO, said, "Such arrangements circumvent the protections that current state insurable interest laws are intended to provide." The traditional uses of life insurance should not be jeopardized by "inappropriate uses of these products."