Fraud on Life Insurance Application Involving Income/not Health

[finleyh]

I've run into an interesting situation where someone who makes $100k a year was able to obtain over 8 figures in life insurance. There is no way they could have gotten the amount of coverage based on income alone. Over 3 different companies were used and on them the ruse of being a "key man" allowed for the amount of life insurance obtained. On one application it even states to do business with a certain contractor a key man life insurance policy was required. I called the contractor and they said that was not a requirement. I know there is a 2 year incontestability period for any health questions but is there any time frame the insurance company could go back and say there was fraud committed on the application? For the record the insurance companies have paid out. The insured owned 90% of the amount for 3 years prior to his death which did seem suspicious but I already know suicided is covered after 2 years and 1 day. My guess is the incontestability laws are rock solid or this case would have been raked over the coals. Any insight out there?
thanks

 

[DHK]

What is the appraised value (valuation) of the business?

What is the value of the key man to the business? How many years of profitability was this key man covered for?

Who is paying for the coverage?


You are judging the amount of coverage from a "personal" standpoint... and these are business cases. There are many business owners that will limit their take-home salary, but run very high-end businesses.

 

[finleyh]

1. What is the appraised value (valuation) of the business?
It's in the negative $5 mil range at the moment. My client is a creditor in the bankruptcy the departed is party to.
2. What is the value of the key man to the business?
That is highly debatable. He did procure business but his niche was fraud. It could be coincidence but he lost 2 homes and a business to fire.
3. How many years of profitability was this key man covered for?
There were a few good years (maybe 3) but nothing exceptional by any means. They typically under bid on projects and although gross sales appeared high net income was low.
4. Who is paying for the coverage?
A family member was the face of the company and paid the life insurance premiums as a form of compensation that was deducted.

In my opinion there are multiple frauds going on. One in the bankruptcy court and one on the life insurance front. It's convoluted but simple. Although the departed was in the construction business a very large portion of his income came from defrauding creditors, insurance companies and the IRS. The whole IRS situation is complicated. I've tried to make heads or tales out of IRC 101J but gotten nowhere. What is clear is fraud was committed to obtain the amount of life insurance that has since been paid out. Maybe I'm too emotionally involved because he swindled a sweet 67 yr old widow out of over $100k. Any objective information would be greatly appreciated.

 

[Josh]

I've never heard of anyone getting accused of fraud over the amount. The underwriters bought whatever explanation there was. It's difficult to put a dollar amount on a human life. It's also not uncommon to stack policies when people want to get more coverage than a particular carrier will offer.

You're actually also validating the dollar amount. If I'm understanding the situation correctly, you're saying the business was worth negative 5 million. If that's true, there was probably a good pile of other debt on top of that. All of the debt that's being covered usually gets applied in addition to the insurable about of the individual. Rough numbers, if the guy was making over $100k/year X 30 years = $3 million. Add that and just the negative equity we're at $8 million, we're not too far off of hitting the 8 figure territory. Assuming there were some assets in the business that were offsetting some of the debt it would only have to be two million. Now add a few other policies and the 8 figure line is pretty easy to hit.

In short, it's not clear that fraud was committed about the face value. In fact, everything you've said in it's entirety makes it sound like it was a reasonable amount.

 

[VolAgent]

So what is your objective? I'm guessing you want to pull that money into his assets to be available to creditors of his bankruptcy?

If it is fraud, then the insurance company may fight and try to deny payout or recoup the payout if already made. You might find yourself doing a lot of work that doesn't benefit your client.

I would definitely consult a knowledgeable attorney in the area before doing anything. You may be better off getting a settlement from the beneficiary.

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I will add this. Insurance companies neither issue nor pay multimillion dollar policies without due diligence.

They apparently felt there was justification for the amount issued, and they felt there was nothing worth pursuing when it came claim time. Otherwise they would have contested the claim, even if it was outside of 2 years.

 

[rousemark]

1. What is the appraised value (valuation) of the business?
It's in the negative $5 mil range at the moment. My client is a creditor in the bankruptcy the departed is party to.
2. What is the value of the key man to the business?
That is highly debatable. He did procure business but his niche was fraud. It could be coincidence but he lost 2 homes and a business to fire.
3. How many years of profitability was this key man covered for?
There were a few good years (maybe 3) but nothing exceptional by any means. They typically under bid on projects and although gross sales appeared high net income was low.
4. Who is paying for the coverage?
A family member was the face of the company and paid the life insurance premiums as a form of compensation that was deducted.

In my opinion there are multiple frauds going on. One in the bankruptcy court and one on the life insurance front. It's convoluted but simple. Although the departed was in the construction business a very large portion of his income came from defrauding creditors, insurance companies and the IRS. The whole IRS situation is complicated. I've tried to make heads or tales out of IRC 101J but gotten nowhere. What is clear is fraud was committed to obtain the amount of life insurance that has since been paid out. Maybe I'm too emotionally involved because he swindled a sweet 67 yr old widow out of over $100k. Any objective information would be greatly appreciated.

Wow! Those are some very serious accusations you are making and you had better be right if you make them public. Otherwise you could be looking at some very large compensation claims brought against you.

As far as fraud in the amount of insurance, for amounts that large, the companies would have required an inspection report and a financial report before issuing the polices so you my be totally off base with your suppositions. Best advice? Drop the hatchet and walk away.

 

[DHK]

Let it go.

http://www.insurance-forums.net/for...rance-policies-can-1-insured-have-t64485.html

As far as the senior who got ripped off for $100k... she could go to court and sue the estate for it. But we're not attorneys, and neither are you. Recommend that she seek qualified counsel and move on.

 

[StanTheInsMan]

I've run into an interesting situation where someone who makes $100k a year was able to obtain over 8 figures in life insurance. There is no way they could have gotten the amount of coverage based on income alone. Over 3 different companies were used and on them the ruse of being a "key man" allowed for the amount of life insurance obtained. On one application it even states to do business with a certain contractor a key man life insurance policy was required. I called the contractor and they said that was not a requirement. I know there is a 2 year incontestability period for any health questions but is there any time frame the insurance company could go back and say there was fraud committed on the application? For the record the insurance companies have paid out. The insured owned 90% of the amount for 3 years prior to his death which did seem suspicious but I already know suicided is covered after 2 years and 1 day. My guess is the incontestability laws are rock solid or this case would have been raked over the coals. Any insight out there?
thanks

Based on the question of being voidable and not contestable, there was a case in Illinois where a client said they didn't intend to sell the policy as a life settlement / premium finance deal and they did. The policy was past the "health" contestability period, but the policy was voided out because of fraud and material misrepresentation . These cases are rare, but they do happen. Hope this helps.

 

[finleyh]

I've never heard of anyone getting accused of fraud over the amount. The underwriters bought whatever explanation there was. It's difficult to put a dollar amount on a human life. It's also not uncommon to stack policies when people want to get more coverage than a particular carrier will offer.

You're actually also validating the dollar amount. If I'm understanding the situation correctly, you're saying the business was worth negative 5 million. If that's true, there was probably a good pile of other debt on top of that. All of the debt that's being covered usually gets applied in addition to the insurable about of the individual. Rough numbers, if the guy was making over $100k/year X 30 years = $3 million. Add that and just the negative equity we're at $8 million, we're not too far off of hitting the 8 figure territory. Assuming there were some assets in the business that were offsetting some of the debt it would only have to be two million. Now add a few other policies and the 8 figure line is pretty easy to hit.

In short, it's not clear that fraud was committed about the face value. In fact, everything you've said in it's entirety makes it sound like it was a reasonable amount.

Josh,
I wish I could give all the information but can not. The business was worth a negative $5 mil because he defrauded another insurance company in the construction business who won their suit. Insuring fraudulently obtained debt seems fraudulent.

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Wow! Those are some very serious accusations you are making and you had better be right if you make them public. Otherwise you could be looking at some very large compensation claims brought against you.

As far as fraud in the amount of insurance, for amounts that large, the companies would have required an inspection report and a financial report before issuing the polices so you my be totally off base with your suppositions. Best advice? Drop the hatchet and walk away.

Rousemark,
You're probably right but before I drop and walk away I will give any info that will help the creditors recoup from this elaborate scam.

 

[VolAgent]

Rousemark,
You're probably right but before I drop and walk away I will give any info that will help the creditors recoup from this elaborate scam.

Again, I repeat my earlier advice. Consult an attorney who has knowledge in this arena. You're going to look like a fool and have expended a lot of wasted effort if all you accomplish is the insurance company being first in line to recover the money.

Perhaps they won't be able to recover, I don't know. But I definitely know I'd talk to an attorney before wasting one second on trying to prove fraud.