Recent developments in the life settlement industry

Abstract

Purpose

The purpose of this paper is to explain the meaning and legal impact of two September 2011 Supreme Court of Delaware decisions regarding challenges to the validity of life insurance policies sold to investors as life settlements on the basis of a lack of an insurable interest after the expiration of the two‐year contestability period.

Design/methodology/approach

The paper outlines the background, factual circumstances, and court decisions on Lincoln Nat. Life Ins. Co. v. Joseph Schlanger 2006 Ins. Trust and PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Trust.

Findings

The court certified three legal questions concerning life insurance policies sold to investors as life settlements: whether two‐year statutory contestability limits apply to insurance policies deemed void for lack of an insurable interest; whether the Delaware statute requiring an insurable interest is violated when the insured individual procures a life insurance policy on his or her own life and immediately transfers the policy to a person without an insurable interest; and whether Delaware law confers an insurable interest upon a trustee of a trust established by an individual insured when at the time of application for a life insurance policy the insured intends to transfer the beneficial interest of the trust to a third‐party having no insurable interest on the individual insured's life.

Practical implications

Investors may require legal comfort concerning insurable interest for policies beyond the two‐year contestability period, but the Delaware court's ruling explicitly affirms the legality of selling life insurance policies to third‐party investors.

Originality/value

The paper provides expert guidance from experienced financial services lawyers.

Citation

Dolan, P. and Alleman, R.F. (2012), "Recent developments in the life settlement industry", Journal of Investment Compliance, Vol. 13 No. 1, pp. 45-48. https://doi.org/10.1108/15285811211216998