Term Life Insurance Articles
State Of California Decides To Regulate Life Insurance Resale
2009-10-26
Recently, Gov. Arnold Schwarzenegger, along with the state of California, has passed a bill regulating the sale of life insurance to investors, and stipulating new requirements for the sale of "second hand" life insurance policies. The crackdown on stranger-oriented life insurance is seen as a positive way to prevent fraud and unfair investment practices that may be harmful to term life insurance policyholders and to life insurance companies.
The bill, Senate Bill 98, prevents consumers from buying a life insurance policy for an investor or a group of investors who stand to profit from the consumer's death. Lawmakers hope that the bill will end the abuse of term life insurance policies that has gradually gained popularity. Under old California law, it was possible for people in high-risk groups, such as senior citizens, to buy a life insurance policy that would then be sold to investment groups or private investors after a period of two years. The two-year period prevented accusations of fraud. The benefit to the policyholder was that all premiums for the policy would be paid by investors, on top of receiving additional compensation from the "beneficiaries." All benefits would then go to the investors upon their deaths. This ultimately made term life insurance a profitable enterprise for the consumers and the investors involved. However, these policies also shortchanged insurance companies, who would have to pay out potentially huge benefits to investor beneficiaries that may not have known the deceased person in life at all.
The overwhelming majority of insurance companies support the passage of the bill. They claim that stranger-oriented life insurance (often referred to as SOLI schemes) go against the foundation of term life insurance. This is because the policies are changed into moneymaking schemes rather than a sound investment by senior citizens to protect their loved ones in the event of death. Term insurance companies, which offer large payouts at typically small premiums, were most often targeted by SOLI schemes, and most directly affected. Senate bill 98 will prevent the schemes, and require licensing for anyone who handles the sale of a term life policy.
SOLI schemes have become popular in the term life industry as the economy worsens. This is because of the monetary gain senior citizens receive by being involved in such a policy. Some experts warn that investors may have taken advantage of senior citizens, and the bill will prevent this sort of fraud and abuse to this and other vulnerable groups. The reaction to the bill in the insurance industry has been positive, and lawmakers and insurance policy experts see it as a sound way to improve California insurance.
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Recently, Gov. Arnold Schwarzenegger, along with the state of California, has passed a bill regulating the sale of life insurance to investors, and stipulating new requirements for the sale of "second hand" life insurance policies. The crackdown on stranger-oriented life insurance is seen as a positive way to prevent fraud and unfair investment practices that may be harmful to term life insurance policyholders and to life insurance companies.
The bill, Senate Bill 98, prevents consumers from buying a life insurance policy for an investor or a group of investors who stand to profit from the consumer's death. Lawmakers hope that the bill will end the abuse of term life insurance policies that has gradually gained popularity. Under old California law, it was possible for people in high-risk groups, such as senior citizens, to buy a life insurance policy that would then be sold to investment groups or private investors after a period of two years. The two-year period prevented accusations of fraud. The benefit to the policyholder was that all premiums for the policy would be paid by investors, on top of receiving additional compensation from the "beneficiaries." All benefits would then go to the investors upon their deaths. This ultimately made term life insurance a profitable enterprise for the consumers and the investors involved. However, these policies also shortchanged insurance companies, who would have to pay out potentially huge benefits to investor beneficiaries that may not have known the deceased person in life at all.
The overwhelming majority of insurance companies support the passage of the bill. They claim that stranger-oriented life insurance (often referred to as SOLI schemes) go against the foundation of term life insurance. This is because the policies are changed into moneymaking schemes rather than a sound investment by senior citizens to protect their loved ones in the event of death. Term insurance companies, which offer large payouts at typically small premiums, were most often targeted by SOLI schemes, and most directly affected. Senate bill 98 will prevent the schemes, and require licensing for anyone who handles the sale of a term life policy.
SOLI schemes have become popular in the term life industry as the economy worsens. This is because of the monetary gain senior citizens receive by being involved in such a policy. Some experts warn that investors may have taken advantage of senior citizens, and the bill will prevent this sort of fraud and abuse to this and other vulnerable groups. The reaction to the bill in the insurance industry has been positive, and lawmakers and insurance policy experts see it as a sound way to improve California insurance.
