New Calif. law discourages stranger-originated life insurance transactions

California Gov. Arnold Schwarzenegger yesterday signed into law a bill that discourages stranger-originated life insurance transactions. Senate Bill 98, which was written by state Sen. Ron Calderon, makes clarifications on insurable interest. Specifically, if the beneficiary of a trust or a special purpose entity doesn’t have an insurable interest in an insured individual, then that beneficiary is violating state laws. The bill also recasts existing law to redefine viatical settlements as life settlements. Additionally, the bill has regulatory provisions on the life settlement contracts, including those that relate to the confidentiality of the policyholder’s medical and financial information. The bill had passed unanimously with votes of 54-0 in the Assembly and 40-0 in the Senate. In stranger-originated life insurance transactions, elderly individuals purchase insurance with the intent of selling the policy to an investor on the secondary market. That investor takes on the payments of the insured’s premiums and collects the death benefit upon the insured’s demise.