Thursday, April 15, 2010

Mysterious Insurance Tricks

We've discussed both Stranger Owned Life Insurance and business-owned life insurance before, but this is a new twist altogether:

"The mother-in-law of a nationally known executive is found dead in her bathtub. She is fully clothed from an evening out at a martini bar, high heels still on her feet. The authorities rule she accidentally drowned."

Sure it sounds like the opening scene in an episode of Columbo, but it could happen.


Maybe: turns out that the owner and beneficiary of the policy was a local entrepreneur (and "companion" of the aforementioned MIL, Germaine Tomlinson) by the name of JB Carlson. According to Mr Carlson, he escorted the soon-to-be-late Ms Tomlinson home on the evening in question; she was apparently rather "tipsy" when he left her in her living room. How she got to the bathtub is anyone's guess.

Now about that policy: as mentioned, we've discussed before how important a funded buy-sell agreement can be to the continuity of a business. That was apparently Mr Carlson's take, as well, which is why he "legitimately bought the insurance on Ms. Tomlinson as a "key man" policy, sometimes taken out by a business to protect itself from financial damage if a top executive dies. Ms. Tomlinson introduced him to potential investors and told people she was a board member of his company."

[ed: in this case, "key man" is simply industry jargon, no disrespect is intended to the deceased]

If this was indeed the case, then it seems to me to be a legitimate use of the product. To go a step further, a $15 million policy on a septuagenarian would require some significant underwriting. I spoke with an underwriter at my favorite carrier, who told me that a case like this would require a lot of background work:

Obviously, there would be a complete physical, including an EKG and, based on the insured's age, perhaps a "mature assessment." There would be significant financial underwriting, as well, including credit checks and even financials from Mr Carlson's company. The writing agent would also have to supply a cover letter explaining the case.

Of course, this applies only if it was a new policy taken out by Mr Carlson on the life of Ms Tomlinson.

There's another possibility: Although this case involved a new policy, what if Ms Tomlinson had instead simply changed the beneficiary of an existing plan? "Insurable interest" is relevant only at time of issue; if the carrier received a properly executed change of beneficiary form, it would have to comply.

There may well be less here than meets the eye.

[Hat Tip: Teresa and Sara]
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