When life policy changes hands

The regulator should make clear when the insurer may decline transfer of policies, and who will receive the death benefit

Around seventy non-resident Indians, most of them in the Gulf, are putting together complaints against an Indian bank’s Dubai operations. Between 2017 and 2019 they were sold units in a Luxembourg fund that buys life insurance policies from Americans who no longer want them, pays the premiums, and collects the claim when the insured dies. They say it was described to them as capital protected, and that they were encouraged to borrow three to five times the money they had placed with the bank. The fund stopped returning money in 2020. The bank says, it only facilitated the investments, and that the fund’s performance was the fund house’s responsibility.

Whatever the regulators eventually conclude, the arrangement that failed there has a close Indian cousin, and our law has left it in an unusual position.

Strip the geography away. A company buys a man’s life insurance policy from him and he takes cash today. The company pays his premiums from then on, and when the claim falls due the money goes to the company rather than to his family. Its profit is the gap between what it pays and what it finally receives. Indian law calls it an absolute assignment which passes the policyholder’s rights under the policy to the buyer, subject to the terms of the policy and of the assignment itself. The company funds itself by promising outside investors a fixed return out of a payment whose timing is a death.