Fraudulent and Unfair Schemes Relating to Life Settlements and Life Insurance Premium Financing
A life settlement is a financial transaction where an investor buys a life insurance policy from the policy owner for compensation less than the expected death benefit under the policy. The investor then makes any required premium payments and holds the policy until the death of the insured, at which time the investor is paid the death benefit under the policy. At times, life settlements can be a favorable option for a senior, to access the death benefit of a policy for which he or she no longer has a good economic need to keep in force. A life settlement can pay such an individual more than the surrender value of the policy offered by the insurer, and he or she is relieved of the responsibility of making premium payments.
Contact a lawyer at The Garcia Law Firm today if you believe you have been the victim of a fraudulent life settlement.
Unfortunately, as the life settlements industry grows, so too have the fraudulent and unfair schemes relating to life settlements which have resulted in investors and other industry players cheating policy owners to maximize profits for themselves and their firms. The Garcia Law Firm has extensive experience protecting the rights of people who have fallen victim to these schemes.
Some of these schemes, which have become increasingly common, are known as "Stranger Originated Life Insurance (STOLI)" or "Speculator Initiated Life Insurance (SPINLIFE)" where an investor approaches a senior and encourages the senior to purchase a life insurance policy that will be transferred only a couple of years later to the investor. There are various risks associated with STOLI and SPINLIFE schemes, including having a complete stranger having a financial interest in the senior's early demise; the possibility of liability on the part of the senior or the estate of the senior to the insurer, who may be able to sue to rescind the policy; potential loss of the ability to purchase additional life insurance should a legitimate need for life insurance arise; and adverse tax consequences.
In addition, there have been reports of life insurance brokers, often hired by senior policy owners to sell the senior's life insurance policy at the highest possible price, who instead are accepting secret commissions from life insurance companies in exchange for suppressing competitive bids from other life settlement companies. This practice unfairly reduces the amounts policy owners receive for their policies. The practice also violates the duties the broker owes to the policy owner to work to obtain the highest price possible for their client's policy through competitive bidding.
Another popular scheme, known as "premium financing", is also being used increasingly to defraud seniors out of their life insurance policies. "Premium financing" involves the provision of loans for financing life insurance premiums, with the policy itself acting as security for the loan. That is, should the borrowing senior default on the loan, the lender often has the right to take ownership of the policy. Premium financing programs can be a legitimate financial and estate planning tool for seniors and their families. However, some premium finance companies are operating their companies to defraud seniors out of their life insurance companies rather than provide a legitimate financing tool.
Such fraudulent and unfair schemes involve loan programs which are devised with the intent of causing the accrual of extremely high or exorbitant interest (often greater than 100 percent of the initial loan amount) which the senior cannot possibly afford, leaving the borrowing senior with no choice but to relinquish his life insurance policy to the premium finance lender. The premium finance lender is then able to collect the benefits of the policy upon the senior insured's death, or re-sell the policy on a secondary market for an enormous profit.
Another common scenario is where the premium finance company lends money for the purchase of a life insurance policy to an irrevocable life insurance trust which the company has induced the senior to create. The premium finance company also induces the senior to appoint an agent or employee of the finance company as trustee of the trust. Thereafter, the trustee, in violation of various duties owed to the trust, enters into an unconscionable loan agreement with the lender that eventually results in the senior being defrauded out of his life insurance policy.
If you believe that you have been the victim of an unscrupulous and/or fraudulent STOLI life settlements or premium financing scheme, contact The Garcia Law Firm today for a free consultation with an attorney regarding your potential case.
