Kramer Case A Victory For Life Settlement Industry?

Today we had a newsletter forwarded to us from Fasano Associates. It examines the recent, high profile Kramer court decision about beneficial interest life settlements. The author did a good job of pointing out that while the decision was seen as a victory, it doesn't necessarily mean the industry should get excited. Below is the article from the newsletter.

The recent New York Court of Appeals decision on the Kramer case reminds me of another Kramer decision — that of Cosmo Kramer of Seinfeld fame.

In one of the funnier Seinfeld episodes I remember, Cosmo Kramer had been wrongly arrested on suspicion of being a serial killer of young women in the Hollywood area. He was released after another young woman was killed while he was in custody — proving that he could not have been the murderer. At the end of the episode, we see Jerry, Kramer and George jumping for joy at the news of the new murder that resulted in Kramer’s release — until they all realize at the very end that they were, after all, celebrating the death of an innocent woman.

The New York Court of Appeals clearly made the right decision in the Arthur Kramer case by affirming the right of an insured to designate his beneficiary and in being able to transfer his policy, any time after policy issue, to anyone he chooses — regardless of whether the subsequent policy owner should have or not have an insurable interest. Insurance companies have a duty to underwrite and it is their responsibility to establish the insurable interest of a life insurance application. Once a policy is issued it becomes an asset of the owner, like a stock or a bond, and should be transferable without an after-the fact requirement to devine the initial intent of the insured.

But let’s not lose sight of the reality of this case. Arthur Kramer was a rich attorney who got richer by abusing the system. He took out $56 million of life insurance, not to provide protection to his family, not to lessen the tax burden at the time of his death, not to arrange for key man insurance, but to profit by the immediate sale of his policies to investors in the secondary market. If the purpose of the life settlement industry is seen as helping the rich get richer — be they the Arthur Kramers of the world or the investors who benefit from an early death in a much publicized case like this one — and make no mistake about it, our gloating over the Kramer case outcome will be seen that way, then we may — like Jerry, Cosmo and George — be celebrating a death … ours.

The life settlement market has legitimacy because it gives an insured another option to surrendering or lapsing an unneeded life insurance policy. Let’s not lose sight of that and let’s not, in our jubilation over the Kramer case outcome, allow others to lose sight of it.