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Regulators Zero in on Zero Premium Life
August, 2007— Regulators in Texas, Georgia, and North Carolina have warned agents to be careful when recommending so-called zero premium life transactions—or those with names such as “Estate Maximization” or “No-Cost-to-the-Insured” policies. These are forms of stranger-owned life insurance, and may potentially involve insurance code violations for rebating, improper inducements, misrepresentation, or other deceptive sales practices.
The Texas Department of Insurance identified three red flags that should trigger special due diligence:
- When another person or entity purchases insurance on a client’s life in exchange for an immediate lump sum payment or a partial payment of the policy’s face value to beneficiaries upon the insured’s death.
- When a person or entity solicits or sells a client a life insurance policy for the sole purpose of selling the policy to a viatical or life settlement provider.
- When the agent is materially involved in a transaction that leads to the purchase of life insurance for the above purposes.
If these red flags are present, the regulators urge Texas agents to inspect insurance applications and sales materials carefully; to verify that the products and entities have been properly filed and approved in Texas; to fully understand their personal obligations in the transaction; and to make sure the solicitation doesn’t violate the Texas insurance code.
The Georgia Insurance and Safety Fire Commissioner has warned its agents about a zero-cost solicitation that offers to pay agents a fixed fee of $250 for each “final expense” or “final arrangement” whole or universal life policy referred to and bought by an unnamed insurance company. The department has opened an investigation to determine whether these solicitations violate Georgia insurance statutes and regulations.
Similarly, in North Carolina, the insurance commissioner has advised agents to use caution regarding “zero premium life” solicitations until the department can secure review the offering in greater detail.
Bottom line: given the mounting regulator interest and the question of whether such deals involve a legitimate “insurable interest,” agents may want to think twice about recommending such transactions to their clients.
What “Red Flags” are affecting your business? The National Ethics Bureau welcomes your input. Send your comments to: hlew@ethicscheck.com
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