History of Life Insurance Companies
Since their early beginning during the middle ages, life insurance companies (then called guilds) have existed to protect beneficiaries. Until life insurance companies were regulated by law, it was possible for anyone to obtain life insurance on another person's life, without any legitimate interest in the person insured.
Legislation Prohibits Practice of "Gambling on Human Lives"
The practice of "gambling on human lives", came to an end after the British enacted legislation to prevent life insurance companies from issuing policies that evaded gambling laws. The US later adopted similar laws to regulate "insurable interest" among life insurance companies. These laws include three main provisions that apply at the time a policy is purchased:
- The policy owner must possess a blood, legal, or business interest in the person insured
- The insured must consent to the policy owner purchasing the life insurance
- The policy owner must have a legal and economic interest in having the insured's life continue
1911 Court Rules Against Life Insurance Companies Resistance To Life Settlement Insurance Transactions
Insurable interest laws shape the debate over the life settlement market including the life insurance company's rights and responsibilities. As early as 1911, the US Supreme Court upheld a policy owner's right to sell a life settlement insurance policy to an unrelated third policy after it has been issued. However, many life insurance companies still site insurable interest laws in opposition to life settlement insurance transactions.
Ongoing Debate Between Life Insurance Companies and Life Settlement Companies
The debate continues between life insurance companies' rights and the rights of policy owners' to participate in life settlement insurance transactions. In the meantime, the life settlement industry is thriving and life settlement insurance transactions are growing rapidly throughout the world.
Life Insurance Companies and Life Settlement Companies Lobby
Many states have now passed laws to regulate the life settlement industry. In many instances, life insurance companies have been instrumental in influencing these laws and will likely continue to be a strong lobbying force to protect their interests and what they believe are the best interests of their policyholders. Their efforts include reasonable arguments that life settlement insurance transactions are not always beneficial to policy owners, insureds and beneficiaries. Life insurance companies may also have an impact on life settlement insurance transactions through the design of policies that are less friendly to a future sale. Life insurance companies might also become involved in funding life settlements or developing alternatives to life insurance settlements.
Similarly, the life settlement industry has and will continue to lobby vigorously on behalf of the policy owners' rights to participate in legitimate life settlement insurance transactions. They will also quite likely become more involved in developing best practices to protect consumers from abuses connected to life settlement insurance transactions.
Can Life Insurance Companies and Life Settlement Companies Peacefully Co-Exist?
Of paramount importance to the long term success of the industry, is all players' ability to cooperate for the benefit of policy owners, insured's, and beneficiaries. This will require significant improvements in the transparency of all life settlement insurance transactions. "Must haves" are full disclosures in the areas of compensation, alternatives, replacement insurance, privacy, and suitability.
Regulators as well as each life settlement association and life insurance association will likely play a part in influencing the disclosure process.
