infologicd
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- 8
Can a life insurance company decide to deny insurable interest on a policy even if the state law defines insurable interest to exist?
Insurable Interest - Who Decides?
- Thread starter infologicd
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They might do it based upon their "interpretation" of the law which may or may not be correct..
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infologicd
New Member
- 8
For example, my potential client is a 501(c)(3) foundation wanting to purchase consenting life insurance on some individuals who have not personally donated to the foundation. The Alabama state law regarding insurable interest seems to approve of this, as it specifically mentions:
"....a charitable organization that meets the requirements of Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, may own or purchase life insurance on an individual who consents to the ownership of purchase of that insurance...."
However, the ING underwriting has a section called "Purpose of Insurance" for "Charitable Giving" and says it requires details on the insured's:
-Average of 3 year's history of gifts X lesser of 10 years or remaining life expectancy; Personal insurance needs must be fully met before charitable giving purchases are addressed.
-To qualify for higher amounts, need multi year history of giving to the benefiting charity, documented by receipts or income tax returns
The state laws of Alabama grant "insurable interest" to a 501(c)(3) of a consenting insured (without requiring particulars on the insureds donation patterns), but it seems that ING does require these details and may independently accept or deny the policy based on these details...
Will ING be forced to adhere to Alabama state law in granting insurable interest here, or can ING act independently and decline the application based on its own definition of insurable interest?
"....a charitable organization that meets the requirements of Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, may own or purchase life insurance on an individual who consents to the ownership of purchase of that insurance...."
However, the ING underwriting has a section called "Purpose of Insurance" for "Charitable Giving" and says it requires details on the insured's:
-Average of 3 year's history of gifts X lesser of 10 years or remaining life expectancy; Personal insurance needs must be fully met before charitable giving purchases are addressed.
-To qualify for higher amounts, need multi year history of giving to the benefiting charity, documented by receipts or income tax returns
The state laws of Alabama grant "insurable interest" to a 501(c)(3) of a consenting insured (without requiring particulars on the insureds donation patterns), but it seems that ING does require these details and may independently accept or deny the policy based on these details...
Will ING be forced to adhere to Alabama state law in granting insurable interest here, or can ING act independently and decline the application based on its own definition of insurable interest?
- 11,534
I think you're barking up the wrong tree on this.
What you're quoting for "state law" simply says that the charitable organization CAN purchase insurance on those who they want... as long as they consent.
But just because they CAN... doesn't mean that there's an economic reason to do so.
Life insurance is about making one whole... or rather, replacing what would be lost due to the untimely death. It involves an ECONOMIC risk.
If there are no contributions being made... then there is NO economic risk to that person's passing.
Now, if that person is an EMPLOYEE of the charitable organization... then you can simply do a key person policy and arrangement.
But always follow the money - where is the money lost if the person dies? Who needs money if that person dies, and how much?
No money? No reason to insure that person.
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Here's a hint: it's NEVER "state law" vs "company interpretation".
It's about where the money is and where the risk is, should that person pass away sooner than later.
What you're quoting for "state law" simply says that the charitable organization CAN purchase insurance on those who they want... as long as they consent.
But just because they CAN... doesn't mean that there's an economic reason to do so.
Life insurance is about making one whole... or rather, replacing what would be lost due to the untimely death. It involves an ECONOMIC risk.
If there are no contributions being made... then there is NO economic risk to that person's passing.
Now, if that person is an EMPLOYEE of the charitable organization... then you can simply do a key person policy and arrangement.
But always follow the money - where is the money lost if the person dies? Who needs money if that person dies, and how much?
No money? No reason to insure that person.
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Here's a hint: it's NEVER "state law" vs "company interpretation".
It's about where the money is and where the risk is, should that person pass away sooner than later.
Even if you can prove insurable interest, you can't force an insurance company to offer a policy. At the end of the day, the insurance company can interpret the insurable interest in their own way and they may find the type of insurable interest is not a type of insurable interest that they are willing to insure. You don't have a constitutional right to life insurance just because you are healthy and have insurable interest.
- 8,707
A husband may have insurable interest on his wife but that does not mean he can purchase just any amount of coverage depending on age he would be limited to a certain multiple of her income and that's the same thing ING is doing here they are limiting the policy to a multiple of previous years gifting.
Now instead of banging your head against the wall there are a couple of options.
1. Ask a different carrier.
2. Take an existing policy and change the beneficiary to the 501c3.
The consenting individuals who are non donors are free to purchase their own policies and then name the charity as beneficiary. This way you avoid the ING concern altogether.
Charitable planning can be quite complex, and I suggest you partner with another agent near you who has experience I this area.
Charitable planning can be quite complex, and I suggest you partner with another agent near you who has experience I this area.
- 717
ING isn't defining insurable interest with their underwriting guidelines.
They are indicating what their underwriting business practices are as it relates to charities...if your case meets their guidelines you may write it with them, if not you are better off looking elsewhere for a carrier that will fit your situation.
They are indicating what their underwriting business practices are as it relates to charities...if your case meets their guidelines you may write it with them, if not you are better off looking elsewhere for a carrier that will fit your situation.
The better way to phrase the question is: the charity has an insurable interest but to what extent?
In the case of the OP I'd say the extent of the insurable interest is zero or very close to it. I don't know any reputable insurance company who will issue a policy like this any longer. In the early 2000s, sure. There were some desperate companies that wrote lots of STOLI, CHOLI and all the other OLIs but where did that lead?
In the case of the OP I'd say the extent of the insurable interest is zero or very close to it. I don't know any reputable insurance company who will issue a policy like this any longer. In the early 2000s, sure. There were some desperate companies that wrote lots of STOLI, CHOLI and all the other OLIs but where did that lead?
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