Statement of Best Practices for the Life Insurance Premium Finance Industry
The Life Insurance Finance Association (LIFA) represents the Life Insurance Premium Finance Industry, and other life insurance, financial planning and loan professionals who support that industry. Life insurance premium loans enable consumers to purchase and maintain valuable life insurance coverage for their family and business needs. The impetus for LIFA's formation was the need for life insurance premium finance professionals to actively promote and embrace standards for "best business practices" and assist policymakers, insurance carriers and the public in understanding and differentiating between legitimate premium finance transactions from schemes merely cloaked as premium finance transactions that violate insurable interest, anti-rebating, anti-inducement or other insurance laws. To further this goal, LIFA's Board of Directors has adopted the following Statement of Best Practices for the life insurance premium finance industry.
Background
The purchase of a life insurance policy and the method of financing the purchase and preservation of a life insurance policy are separate and distinct transactions from any other policy transaction, including the potential sale of a life insurance policy in the secondary life insurance market. A legitimate premium finance loan does not result in the purchase of a life insurance policy in violation of the insurable interest principle, or a life settlement transaction and accordingly must bear the characteristics and be respected as a loan. Life insurance premium financing has served the interest of purchasers of life insurance, as well as life insurers and their agents, for more than 100 years, long before the emergence of the concept of so-called Stranger-Initiated Life Insurance ("SILI") or Stranger-Owned Life Insurance ("STOLI"), which are terms without commonly understood meanings used to describe illegitimate premium finance or life settlement transactions.
STATEMENT OF BEST PRACTICES
- LIFA believes that the best way to serve policy holders and their professional advisors is through complete transparency in all life insurance premium finance transactions; full and accurate disclosures should be made to all parties to the transaction, including consumers and insurers.
- Life insurance premium finance lenders should not: (i) take ownership in a financed life insurance policy or its death benefits or (ii) control the sale of a financed life insurance policy, but must, as any other type of lender, be permitted to take a security interest in the collateral provided to secure the loan and to enforce its rights in connection with a loan default.
- The mere existence of a security interest of a lender in a financed life insurance policy does not indicate that the policy owner does not really own or need the policy.
- Insurers should not discriminate against consumers who choose to utilize financing to enable their purchase of life insurance policies by restricting how and when they can purchase a life insurance policy for their or their family's or business' benefit.
- Legitimate premium financing should be available to all consumers who need or want a source of funds to help meet their life insurance needs.
- Life insurance premium finance lenders should seek to finance only unquestionable validly issued life insurance policies because such policies are an important source of collateral for the loans.
- Life insurance policies should not be issued if their sale includes rebating in violation of state insurance laws.
- Life insurance policies should not be issued if the purchaser of the life insurance policy does not have an insurable interest in the insured's life at the time of the purchase of the policy.
- Life insurance policies should not be issued if the life insurance premium finance loan used to pay the premiums due for the purchase of the policy leaves no reasonable financial choice except to assign or relinquish the ownership of the policy to the lender upon the loan's maturity.
- Life insurance premium finance loans should be designed so that the policy owner has a real and substantial economic interest in the policy, with a reasonable expectation of receiving a material financial benefit from the policy after repayment of the loan.
- Life insurance policies should not be issued if the policy owner, who utilizes life insurance premium financing to purchase the policy, solely for the purpose of selling the life insurance policy in a life settlement transaction.
- Life insurance premium finance should not be utilized to evade or avoid state insurance laws, including, without limitation, insurable interest laws or usury laws. The public policy against wagering contracts and use of life insurance policies as a means for speculation for profit on people's lives dictates that there must be a valid insurable interest in any issuance of a life insurance policy.
- Life insurance premium finance should not include incentives (including rebates) paid to purchasers of life insurance or insured's, a guarantee of a policy's life settlement value or "free insurance" in violation of state insurance law.
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