Life Settlement Question

Question: Do Life Insurance Carriers agree with Premium Financing?

Answer: This is a great question, the past few years carriers saw a large spike in premium financed cases, to combat this they made changes to premium pricing and their applications.

I found this piece from Stephan R. Leimberg regarding how carriers have updated their applications.

Once it became apparent that many premium financing arrangements were, in reality, a disguised means of settling new policies with investors, many insurance companies created internal policies to identify and block these transactions.

Questions in policy applications, agent reports, and personal interviews have been designed to help identify these transactions and deny coverage for investor initiated life insurance purchases. (Every advisor involved in these transactions should obtain and thoroughly examine the "rules" an insurance company has established with regard to investorinitiated transactions).

Most major insurance companies, concerned that they have no objective way to ascertain if a policy applied for by a trust, is or is not, intended to be sold by the insured to a life settlement company, are asking questions similar to the following:

1. Is there, or will there be, an understanding or agreement providing for a party, other than the Owner, to obtain any right, title or other legal or beneficial interest in any policy issued on the life of the Proposed Life Insured(s) as a result of this application? (No, Yes - Give details).

2. What is the planned source of the funding for the policy(ies) currently applied for?

3. Will the Owner, now or in the future, be paying premiums funded by an individual and/or an entity other than the Proposed Life Insured(s), or the Proposed Life Insured's employer?

4. Will the premiums be financed through a loan?

5. What is the duration of the loan?

6. Who is the lender?

7. What amount and type of collateral is required to secure the loan?

8. Will any policy issued on the life of the Proposed Life insured(s) as a result of this application replace a policy which has been viaticated or settled? (No, Yes - give details)

9. Will any entity other than a life insurance company be medically evaluating the Proposed Life Insured to determine life expectancy or to otherwise obtain financing? (No Yes - give details).

10. Beneficial interests under the Trust can and will only be established for persons who (i) are related to the Proposed Life Insured by blood or by law, (ii) have a substantial interest in the Proposed Life Insured engendered by love and affection, or (iii) hold a lawful and substantial economic interest in the continued life of the Proposed Life Insured.

Hope these questions will help give you an idea of what insurance carriers will be expecting to be provided with.


The author would like to acknowledge and express deep gratitude to the many individuals who were most helpful in the research and analysis and philosophical and ethical understanding of this material including Morey S. Rosenbloom of Blank Rome, Howard M. Zaritsky of Pitcairn Trust and Tax Planning With Life Insurance, Charles Ratner of Ernst & Young, Becky Hanna of Genworth Financial, Janice Forgays of Sun Life Financial, Greg Jenner, Kenneth Kingma,Warner Norcross & Judd LLP, Michael Lovendusky of the American Council of Life Insurance, Steve Sternberger of Old Mutual Financial Network, Faye Williamson, LIMRA International, Larry Brody of Brian Cave, Larry J. Rybka of Valmark Securities, Lori Epstein of Metropolitan Life, Randy Zipse of John Hancock, Richard Harris of BPN Montaigne, Barry Flagg of The InsuranceAdvisor.com, Mike Nelson, Iowa Savings Bank, Stan Wynn of Northwestern Mutual, Jeff Pennell of Emory Law School, and Louis Harrison of Harrison and Held. Of course, all wrongheaded opinions, minor and grievous technical errors and omissions are those of the author.

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