Insurance companies are typically required to approve an insurance policy only when the policy purchaser has an “insurable interest” in the insured person or item. This means that the policy purchaser must stand to suffer a financial loss if the insured person or item is damaged or destroyed in some way. However, if the policy purchaser and the insured don’t have an insurable interest, there are a few ways one might be able to bypass the insurable interest law.

Benefit Assignment

Benefit assignment is one way to bypass the insurable interest law. It involves the policyholder transferring the insurance policy’s benefits to another person, such as a family member or a business associate. This requires the policyholder to be made the insured person’s beneficiary in the event of their death. This arrangement is often used in business transactions, in which the policyholder assigns the policy’s benefits to a third party in order to secure a loan or other type of financing.

Premium Finance Loan

Another way to bypass the insurable interest law is to take out a premium finance loan. This is a loan taken out against the policyholder’s insurance policy. The loan is used to pay the insurance premiums, and the policyholder pays back the loan with interest over a period of time. This arrangement can be beneficial for those who don’t have enough money to pay for their insurance policy up front.

Viatical Settlement

A viatical settlement is another way to bypass the insurable interest law. A viatical settlement is an agreement between the policyholder and a third party, such as an investor, in which the third party purchases the policyholder’s life insurance policy at a discounted rate. The investor pays the policyholder a portion of the death benefit and becomes the beneficiary of the policy. This arrangement is most often used by those with terminal illnesses who wish to cash in on their life insurance policy.

Conclusion

While there are some arrangements that allow one to bypass the insurable interest law, it is important to note that these types of arrangements can be risky and can have serious financial consequences. It is always best to consult a qualified financial advisor before engaging in any type of arrangement that could put your assets at risk.