It is easy to be cynical these days. Someone offers you a great deal on furniture, for example, and your first thought is, “What’s wrong with it?” Another person does a kind gesture, and you ask, “What’s in it for him?” Expect the worst, and you will never be disappointed.
Sometimes, though, it is our better angels, not our inner cynic, that question a gift. When Pasco County questioned an offer of “free life insurance,” for example, the county’s hesitation was well founded. The county ran the offer past the Florida Office of Insurance Regulation, and the OIR concluded that, really, there is no such thing as a free lunch or free life insurance.
In our last couple of posts, we have discussed some of the OIR’s reservations to the offer. The bottom line, though, was the legality of having a disinterested third party — a stranger to the insure — pay for life insurance policies. The scheme, the OIR reported, may violate the state’s insurable interest statutes.
Insurable interest is a basic tenet of insurance law. Florida law provides a succinct definition of the rule: A person purchasing a life insurance policy must have
an actual, lawful, and substantial economic interest in the safety and preservation of the life of the insured or a reasonable expectation of benefit or advantage from the continued life of the insured.
For example, Wife is the primary wage earner for the household. Husband has no job but receives a small amount from Social Security. He purchases a life insurance policy — that is, he pays for the premiums — for his wife to ensure his financial well-being if she dies before he does. He has an actual and reasonable interest in her continued safety, if only because she will continue to earn the salary that supports him. The policy will only replace the lost income for a while, even though it cannot replace the companionship and stability he enjoys as her husband.
So when you look at the proposed Benefit Stabilization Funding Program, it doesn’t really look like any examples of a valid, enforceable and legal insurable interest.
In fact, it looks a lot like something the OIR warned about in 2009. We’ll explain more in our next post.
Wall Street Journal, “Regulators Slam Investor Proposal to Pay for Teachers’ Life Insurance,” Leslie Scism, June 13, 2014
Florida Office of Insurance Regulation, “Stranger-Originated Life Insurance (“Stoli”) and the Use of Fraudulent Activity to Circumvent the Intent of Florida’s Insurable Interest Law,” January 2009Share