According to today’s WSJ, cops arrested Florida insurance agent Steven Brasner and it wasn’t for the usual financial misdeeds miscreants are normally accused of doing when playing with OPM. In addition to state charges of alleged grand theft, fraud and other offenses he faces civil charges by so-called clients who allege they lost money buying now worthless insurance policies.
The story begins, dear reader, post bubble, when insurance agents back in 2004-2008 were selling insurance policies on people to investors. These policies were called SOLI, or stranger originated life insurance. In fact Steven and his wife owned a motor yacht named precisely that.
The scam works when an insurance agent contacts a senior and offers them a percentage of the face amount of a life insurance policy that a hedge fund would buy, pay the premiums and be the owner of the policy. The deal involves a waiting period of 2 years in order to pass the incontestable period after which the retiree would change the beneficiary to the hedge fund.
The twist was that the agents would lie on the application to get the retiree to qualify for jumbo insurance policies. Someone who earns only social security income does not normally qualify for mega-million dollar life insurance policy. The insurance companies need to see some sort of either financial or emotional loss to underwrite a policy of that size. A gray haired lady living in a Florida mobile home park generally doesn’t qualify.
Financial inducements to buy a policy is illegal and lying on the application to buy the policy is also illegal. Included in the application is an agent statement that asks who is paying the premium, will the insured be selling their policy and would the premiums be financed. There are insured application net worth and income questions which the insurance companies allege Mr. Brasner falsified and not the client.
Reading in-between the lines I deduced the insurance companies went after the clients of Mr. Brasner with criminal intent until those clients agreed that they did not complete the application and that they were lied to. The retirees were then let off the hook in return for their testimony against Brasner. ( I think they use that same technique on Law & Order),
According to records hedge funds and investors bought the policies Brasner originated. No word if authorities will pursue them or simply concentrate on eliminating Mr. Brasner from selling future insurance policies.
So far it is not illegal to sell a policy that you have owned and paid for. It is however illegal to lie on an application for insurance or have a stranger buy and pay premiums on a policy for you. The insurable interest rule comes into play for the first two years of the policy life.
As always whenever you have questions about transactions that may not be in your best interest contact your lawyer or tax professional.
If you have questions on this blog call Paul at 877 783 7080 or write pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
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