NAIFA Policy on Insurable Interest & SOLI

Adopted by NAIFA Board May 9, 2006

NAIFA has given substantial consideration to a variety of life insurance practices, known chiefly as SOLI (Stranger Originated Life Insurance), under which typically:

a policy is issued to a person (the insured or someone with an insurable interest in the insured) who neither provides, nor incurs significant liability with respect to, the resources with which the policy is acquired;
resources are provided or guaranteed by a person who does not possess an insurable interest in the insured; and
it is contemplated at inception that sometime after two years from the policy's issuance, the policy is likely to be resold (or will primarily provide benefit) to a person who lacks insurable interest.

NAIFA has concerns about SOLI practices similar to those it holds about so-called IOLI (Investor Owned Life Insurance), in which an entity funded by private investors uses a charity’s rights under insurable interest laws to take out life insurance that would otherwise not be available to that entity or its investors.

NAIFA believes that IOLI and SOLI arrangements are not consistent with the intended purposes of insurable interest statutes within the various states. These arrangements erode principles designed to ensure that life insurance is used to protect the long-term interest of parties associated with the insured: families, businesses, business associates, and/or charities. NAIFA, in conjunction with the broad life insurance industry, including AALU, NAILBA and ACLI, has consistently opposed the loosening or circumventing of state insurable interest laws to permit those who do not or should not enjoy such an interest to take out insurance on the insured directly or indirectly. If it becomes common practice to take out a life insurance policy with resources provided or guaranteed by those who have no insurable interest in the insured and who expect to control the beneficial ownership of the policy in the future, we believe this will put our product in jeopardy of being taxed under rules more consistent with those now applied to investment products.

By contrast, NAIFA’s insurable interest-related concerns currently do not extend to a situation in which there is: (1) full recourse or adequately collateralized non-recourse premium financing and the intent is for the long-term retention of the policy by one who has an insurable interest in the insured, or (2) a valid life settlement motivated by circumstances arising after the policy issuance.

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