The Law of Life and Health Insurance - § 2.07[9] Investor Initiated Life Insurance (“IILI”)

The Law of Life and Health Insurance - § 2.07[9] Investor Initiated Life Insurance ("IILI"), is a section that was recently added to Chapter 2 "Insurable Interest" of The Law of Life and Health Insurance by Bertram Harnett and Irving Lesnick.  The authors added this subsection to outline the structure, economics and industry and regulatory reaction to investor initiated life insurance transactions. These transactions have become a phenomena that have recently driven much litigation. The success of the viatical business led to the development of what is variously called Investor Initiated Life Insurance (''IILI''), Investor Owned Life Insurance (''IOLI'') or Stranger Owned Life Insurance (''SOLI''). The authors point out that "Since the entire economic basis of this IILI concept is to shift profit from the life insurance companies which issue the purchased policies to the investors who buy them, resistance has developed. There has been some movement toward legislative or regulatory limits on IILI activity, which is discussed in Section 5.06A. This legislation should help to keep marginal operations such as those that swarmed into the regulatory void which initially existed with respect to AIDs related viatical transactions from infecting the ILII market, but will also have the effect of reinforcing the legitimacy of whatever activity survives its restrictions."

The authors explain how life insurers are not waiting for a regulatory response, but are trying to invent measures to prevent the shift in profit to investors who have no interest in the life of the insured. At best, it violates the very essence of life insurance in principle so life insurers have changed applications to ask whether an insured intends to sell a policy or inquiring as to the source of funds to pay premiums. The hope is that if there seems to be an "IOLI" or "SOLI" situation, the insurer will not write a policy.

The section also discusses the idea that the best way to, perhaps, regulate ILI transactions is from an insurable interest perspective. If these policies were regulated to state that since an investor has no insurable interest then the policy is void, rather than voidable perhaps these types of transactions would disappear. "There is authority for the proposition that a policy which is void for lack of insurable interest cannot be revived by waiver or estoppel."

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