Foresters has warned advisors that it will not accept applications for “stranger owned” life insurance policies.
In an advisory notice published earlier this month, the insurer said it will not accept applications for policies where the third party that initiated the policy has no insurable interest in the life of the insured person. These include viaticals, life settlements, non-recourse premium financing, and all other situations in which any party besides the insurer or the insurer's authorized agent sells, trades, transfers, pledges or assigns a life insurance contract.
Foresters notes that third-party premium financing transactions are designed to maximize profits, and that the insured person is often encouraged to buy the largest policy possible irrespective of his or her future insurance needs. The insurer also points out that trafficking in life insurance policies is illegal in many Canadian provinces.
“Using insurance as an investment vehicle by a third party who has no real insurable interest constitutes a practice that we consider unhealthy for the industry,” concludes the advisory. “Our employees will be diligent in identifying proposed sales that are not consistent with the applicant's insurance requirements or Foresters underwriting standards.”