Ban On Stranger-Initiated Life Insurance Advances In Florida House

Jan. 15--Life insurance isn't supposed to give an investor an incentive to root for someone to die sooner rather than later.

But that's what state Rep. Cyndi Stevenson, R-St. Augustine, says happens with a ghoulish product known as "stranger initiated life insurance." The state House Subcommittee on Insurance and Banking this week advanced a bill sponsored by Stevenson that would ban the practice.

A traditional life insurance policy is intended to benefit an insured person's family members or business partners upon the person's death. An insured person who owns the policy may sell it on a secondary market before death -- at less than face value -- to use the proceeds before the end of life.

In those cases, the person who pays the premiums has an insurable interest in the continued life and health of the insured.

In Wednesday's hearing, Stevenson described what makes an investor-driven product different. "Under a stranger-initiated life insurance scheme," she said, "a third-party investor or hedge fund with no relationship to the individual initiates the policy purchase by paying the premium and later purchasing the policy from the insured, hoping to profit upon their death."

Investors target senior citizens or people with terminal illness "because the sooner the person dies, the more the speculator profits," Stevenson said.

"This is in direct violation of the insurable interest laws designed to ensure that the person who is a beneficiary of a life insurance policy has a continued interest in the economic life, not the death, of the insured."

Investors might pry targets with gifts, perhaps a free trip or dinner, or promise of free insurance for two years, she said. The insured agrees to take out a policy on his or her own life and assign it to an investor in exchange for cash. After a certain amount of time, typically a couple of years, the investor takes control of the policy and waits for the insured to die.

The proposed law would ban sales of life insurance policies for five years if they were purchased by third parties. Stranger-initiated policies would be banned, and existing stranger-initiated contracts would be void and unenforceable.

Rich Robleto, the Office of Insurance Regulation's life and health deputy commissioner, said the five-year sales ban would make the stranger-imitated market less attractive to investors.

The subcommittee approved an amended version of Stevenson's bill 10 to 1 with the only "no" vote cast by Rep. John Tobia, R-Melbourne Beach. A Senate version of the bill was filed Tuesday by John Legg, R-Lutz.

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