Wednesday, March 15, 2017

A Puzzling Crime [UPDATED & BUMPED]

[Scroll down for Update]

We've posted before about folks who concoct elaborate schemes in order to profit from another's death. It's against public policy (and, of course, the law) to profit from one's crimes. So if you're caught burning down your house, your insurance isn't paying off, and if you kill someone and get caught, you're not getting that sweet life insurance cash.

But there's another facet to this, and it has to do with underwriting.

Here's what I'm talking about:

In this story, tipped to us by FoIB Holly R, we learn about Joaquin Shadow Rams, who seems to have a habit of buying, and then collecting on, life insurance policies for his intended victims, including (allegedly) his mother and his girlfriend. And he might still get away with his most recent adventure:

"Prosecutors say Rams drowned his son after taking out more than $500,000 in life insurance on the boy."

Of course, Mr Rams is still entitled to his day in court, and that's fine, because I really want to focus not on the (alleged) murder itself, but on a much more curious item (from an insurance agent's viewpoint):

What rocket surgeon underwriter approved a half million dollars of life insurance on a toddler? Perhaps if the family name was Gates or Rockefeller, but here? I just don't see it. That just screams moral hazard.

I don't get it.

UPDATE: A Twitter buddy asked me "is it possible though he took out a whole bunch of smaller policies?"

Which is a really good question, because if there were a series of smaller plans, then theoretically the underwriter wouldn't necessarily know.

Here's where that falls apart, though:

When applying for insurance, one must list other plans already applied for or in-force, and then that particular plan is underwritten based on the sum of all those others, as well.

For example, Johny owns a $100,000 policy with Acme Life, and applies for $150,000 with Mutual of Podunk Life. The agent would have to use Podunk's underwriting requirements for $250,000.

Let's say, though, that the agent didn't know about the Acme plan, and the client didn't disclose it. That's called a material misrepresentation, and Podunk could deny the claim when Johny passes.

It gets better, though (for certain values of "better"): the Incontestibility Clause in a policy limits the amount of time that an insurer can contest a claim to the first two years. So it's possible that Mr Rams "jumped the gun" (so to speak) by not waiting until his son was at least 2 years old.

Oh what a tangled web...

(I've also reached out to my underwriter at our primary carrier to see if there's any circumstance where they'd approve $500,000 on a baby. I'll update again as appropriate)
blog comments powered by Disqus