Stranger-Owned Annuities allow investors to purchase an interest in the life of an elderly or terminally ill person, inducing the insured to purchase the policy largely for the benefit of unrelated and sometimes unknown beneficiaries. The NAIC will examine whether greater regulation of the Stranger-Owned Annuity market is warranted and whether consumers are adequately protected.

In recent history, as discussed in the firm’s California Insurance Litigation Blog, the insurance industry has focused on Stranger-Originated Life Insurance Policies and many states, including California, have now regulated them. Numerous states such as California have outlawed them.

Stranger-Owned Annuities are less well known, but equally concerning to the industry. The investors have no insurable interest in the owner of the annuity, and generally purchase the annuity to receive an enhanced death benefit or some other advantage. Other than scattered lawsuits challenging the validity of Stranger-Owned Annuities, the market is largely unregulated. Many states have strict laws regarding insurance interests in life insurance policies, but have little or no regulation regarding annuities.

For a copy of the NAIC’s press release, click here: http://www.naic.org/Releases/2010_docs/stranger_owned_annuities.htm