Secondary life insurance market causes controversy, lawsuits

Feb 01, 2011

Court cases flourish with controversy in secondary life insurance market

The practice of trading in life insurance policies is under fire from investors, as companies promoting such transactions have been targeted in several recent lawsuits, according to Consumer Affairs.

The insurance industry initially promoted the idea of stranger-focused policies, in which an investor paid the premiums on another person's life insurance in order to be able to claim the death benefit when it was paid. However, Consumer Affairs reports some insurers are now suing to cancel policies they say were purchased solely as investments, and have asked government regulators to ban such speculation with their products.

The investors, for their part, are filing suits of their own, accusing the life insurance industry of coming down hard on the practice only after it became clear it was on the hook for large sums in payouts and asking that their premiums be refunded.

Generally, experts say a life insurance policy should be used only as financial protection for loved ones in the event of an early death and not as a risky wager on the well-being of another. 

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