The Texas Department of Insurance issued an alert to agents and consumers concerning a nontraditional insurance product offering it is investigating. The bulletin advised Texas insurance agents to exercise caution with respect to the offering.
TDI said the nontraditional product is being offered in the Stranger-Owned Life Insurance (STOLI) market. Texas agents apparently are being solicited to assist in the sale of what are frequently called “estate maximization plans,” “zero premium life insurance” or “no cost to the insured” policies to consumers, most commonly elderly persons between the ages of 65 and 85.
The department asserted that insurance agents and companies must be licensed by TDI to legally sell life insurance in the state.
Texas law provides that an individual may consent to another person purchasing insurance on his or her life. Texas law also allows owners of life insurance policies to sell existing life insurance policies to entities called viatical or life settlement providers. Viatical or life settlement providers and brokers are required to hold a certificate of registration issued by the Department in order to do business in Texas.
In the bulletin, TDI advises agents if they are considering :
–Soliciting or selling life insurance products to your clients where another person purchases insurance on the client’s life in exchange for an immediate lump sum payment or a partial payment of the policy’s face value to beneficiaries upon the insured’s death;
–Soliciting or selling life insurance products to your clients for the sole purpose of their selling the policy to a viatical or life settlement provider; or
–Materially participating in transactions leading up to the purchase of life insurance for the above stated purposes;
The department offers the following suggestions:
–Inspect the insurance application and sales materials closely. If in doubt about the veracity or legitimacy of these products, contact the department to make sure all forms and items have been properly filed and approved.
–Obtain all details about the program and have a complete understanding of your obligations. If necessary, discuss this information with an attorney.
–Confirm that all persons and entities involved in your transaction are properly licensed and registered by the department. Agent, insurer, premium finance companies, and life or viatical settlement provider and broker licensure and registration can be verified at the TDI Web site (www.tdi.state.tx.us), or through the department’s toll-free Consumer Help Line (1-800-252-3439).
–Carefully consider the transactions in connection with potential violations of the Insurance Code, including those practices outlined in Insurance Code Chapter 541 which include rebating, improper inducements, misrepresentations, and other deceptive trade practices.
–Remember that filing an application for insurance containing materially false information may be prosecuted as insurance fraud and subject the actor to civil and criminal penalties.
–Insurance companies should investigate sudden spikes in production and business produced outside an agent’s normal geographic territory.
–Use common sense. Remember the warning “If it seems too good to be true, it probably is.”
The Texas Insurance Code gives insurers and agents an affirmative duty to report suspicion of fraud, and provides certain immunities from civil liability for reporting suspected fraud to the department. Insurance companies have an obligation to notify the department if they terminate an agent for cause.
Texas law also provides for the assessment of various administrative penalties, including the revocation of an insurance agent’s license, for failure to comply with any specific provision of the Texas Insurance Code, including, but not limited to, those regarding:
–Deceptive trade practices;
–Rebating and other prohibited inducements;
–Misrepresentation of terms and conditions of an insurance policy;
–Misappropriation of money belonging to an insurer or insured; and
–Fraudulent or dishonest conduct.
Source: Texas Department of Insurance
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