Woods Expresses Industry Concerns over Stranger Owned Life Insurance at NAIC Hearing
Such Arrangements Can Undermine Intended Use of Life Insurance, He Says
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NEW YORK – May 3 , 2006 –Life insurance agent trade groups told state insurance regulators today they oppose circumventing the intent of long-standing state insurable interest laws through stranger-owned life insurance, emphasizing that this runs "contrary to established public policy" and could "undermine the intended use of life insurance products."
Speaking on behalf of the National Association of Insurance and Financial Advisors (NAIFA), the Association for Advanced Life Underwriting (AALU) and the National Association of Independent Life Brokerage Agencies (NAILBA), NAIFA CEO David F. Woods, CLU, ChFC, LUTCF, told the National Association of Insurance Commissioners' Life Insurance and Annuities Committee at a public hearing that insurable interest laws should not "permit those who do not or should not enjoy such an interest to take out insurance on the insured, either directly or indirectly."
The NAIC Committee held the hearing to discuss the interplay of premium financing, life settlements and the relationship with state insurable interest laws.
"Life insurance insurable interest statutes have been enacted across the country to ensure that life insurance is taken out by those with a recognized, pre-existing interest in the life of an insured. This purpose is not accomplished if the intent from the outset is to sell the policy to someone who lacks insurable interest," said AALU CEO David J. Stertzer, FLMI. Stertzer emphasized that the organizations' concern did not extend to "full recourse or adequately financed non-recourse premium finance arrangements where the motivation is to help the insured finance insurance that he or she needs and expects to keep." Nor was their concern with "settlements where the transaction was not contemplated in advance but is motivated by a change in circumstances."
NAIFA, AALU, NAILBA and the American Council of Life Insurers have proposed changes to the NAIC's Viatical Settlements Model Act that are intended to prohibit most of these "troubling transactions."
"We acknowledge that it is not always easy to establish the intent of the policyholder at the time of purchase," said NAILBA chairman Matt McAvoy CLU, ChFC. "However, the changes our groups have suggested to the viatical model would go a long way toward strengthening insurable-interest principles. The continued abuse of these principles is not in the best interest of the life insurance industry or the American public which relies on our products for protection and financial security."
Click here to view the written testimony submitted by NAIFA, AALU and NAILBA.