State insurance regulator tells Pasco to just say ‘no’ p2
We are still talking about an unusual business proposition that the Florida Office of Insurance Regulation recently nixed. Pollock Financial Group LLC had approached Pasco County with an offer to purchase life insurance policies for employees of the county school district. Pollock was looking for a “nontraditional” opportunity for a group of investors. The county and the state were looking for legal pitfalls presented by the nontraditional opportunity, and they found some big ones.
The arrangement would work like this: A trust fund would be established with $400 million from the investors. The trust would then purchase life insurance policies for the nearly 10,000 district employees, from an undetermined insurance company but at no cost to the employees or the district. When an insured died, the insured’s beneficiary and the district would each receive $50,000. The investors would receive all the income from the trust.
According to the proposal, this Benefit Stabilization Funding Program would not alter the tax-free status of the life insurance benefits. The proposal also said the program would run for about 55 years.
A closer look, however, revealed a few cracks in the risk-free program. For one, the school district would not get the implied free ride: The district would pay the administrative costs for the program. More importantly, the fact that the district did not own the policies could endanger the rights of the district and policyholders’ beneficiaries to any of the promised payouts. Further, beneficiaries could end up paying income taxes on the payouts because of the unusual nature of program.
Most of all, though, the program raises questions of insurable interest. And that is what we will discuss in our next post.
Source: Wall Street Journal, “Regulators Slam Investor Proposal to Pay for Teachers’ Life Insurance,” Leslie Scism, June 13, 2014Tampa Bay Times, “Pasco school district scrutinizes creative life insurance offer,” Jeffrey S. Solochek, April 8, 2014
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