Kenneth Rijock

Kenneth Rijock

Tuesday, August 20, 2019

NEW JERSEY SUPREME COURT HOLDS LIFE SETTLEMENTS VIOLATE STATE LAW

The Supreme Court of New Jersey, in a decision based upon the state's Insurable interest statute, has held that Life Settlements, investments by third parties in large life insurance policies violate the Laws of New Jersey, and its Constitution, and the policies are void ab initio.

An Insurance Interest is an interest in an individual which would result in a financial loss or hardship, in the event of death. Immediate family members of the insured, businesses that would suffer from his demise, or who are creditors also qualify. All others may not acquire an interest in a life insurance policy naming him as the insured.

The case involved a $5m life insurance policy acquired by investors who were not related to the insured, and had no other Insurable Interest. The Court stated that the policy was a wager on the life of another, and violates New Jersey's public policy. Three other states have addressed the same issue.

This decision is relevant to compliance, due to the fact that Life Settlements, which are investments in the secondary market for life insurance, are often owned by business associations or trusts, and beneficial ownership can be accomplished without the insuror becoming aware, thereby allowing the proceeds of crime to be laundered through life settlements, and reap a substantial return, when the insured passes away. When a bank client seeks to deposit a very large check from a life insurance company in the name of a trust or corporation, the circumstances may demand inquiry into whether the payment was from a life settlement investment.


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