Tuesday, June 12, 2007
Nebraska Insurance Commissioner will ask the Unicameral to close off more senior entrepreneurs. He will seek legislation to restrict selling life insurance policies to investors. Omaha.com. State Insurance Commissioner Tim Wagner said Tuesday that he agreed with changes recommended by the National Association of Insurance Commissioners on how state laws treat so-called stranger-owned or investor-owned life insurance. The insurance commissioners, meeting in San Francisco, said states should put tougher limits on when people can sell their life insurance policies to third parties. Ordinarily, selling an insurance policy to another party is not a problem, Wagner said, because an insurance policy is the property of the insured person. But some investment groups solicit people, especially the elderly, to buy policies, even lending them the money to pay the premium and also paying them substantial fees. The person walks away from the loan, and the investment group ends up owning the policy and collecting the death benefit. Insurance companies have objected, saying the investors do not have a legitimate interest in the insured person's well-being. Insurance companies also object because they base premiums partly on the fact that a large number of policies lapse before the insured person dies. Investor-owned policies always are held until the person dies. Bloomberg News reported that investors held policies with death benefits of $22.5 billion at the end of 2005, according to an insurance analyst. Some companies have stopped selling some types of insurance policies to older people because so many were being resold. The recommended state law, Wagner said, would make stranger-owned life insurance less profitable to investors. The proposed law still would allow people to sell their policies if they had legitimate reasons, such as someone with a terminal illness who needs the cash or a person going through a financial crisis such as a divorce or job loss. Nebraska and 34 other states have enacted the insurance commissioners' earlier recommended law on the subject. Wagner said he would recommend the new model law to the Nebraska Legislature next year. A key provision would prohibit people from selling policies for five years if they were paid for by nonfamily members. A policy purchased by the insured person or with a loan backed by ordinary collateral could be sold after two years. Wagner said he favors the proposed law, although there are questions about how it would be enforced. He said he didn't know how many people in Nebraska take part in stranger-owned life insurance transactions, but some businesses have applied for state licenses to handle such transactions. "That would lead you to think this is a growing segment," Wagner said. If the law passes, he said, the department could investigate a suspicious transaction reported by an insurance company. If there were a violation, the insurance company would not pay the death benefit.