Waiver & Estoppel

MR. WATSON: A waiver is a voluntary "giving up" of a known right. A life insurance policy might pay $100,000 if you die. Agree? But if you die due to war, declared or undeclared, they may not pay. This is an exclusion. During Vietnam insurance companies didn't pay. The following is another fabrication to illustrate waiver & estoppel.

MR. WATSON: So the insurance companies waived their right to enforce this exclusion, meaning they would pay for war. So, now they will pay if we lose anybody there. Y'all with me?

STUDENTS: Um-hmm.

MR. WATSON: Suppose the enemy killed every man and woman we sent over there. And then they invaded Tampa.

MR. WATSON: And the insurance company is saying, "Hey, we are not paying for war." They are going to rescind their waiver. Do y'all understand?

STUDENTS: Yes.

MR. WATSON: The company waived their right to enforce it. That means they would what?

STUDENTS: Pay.

MR. WATSON: Pay. Now they want to get that ‘right’ back, they want their exclusion back. How would you be protected? By invoking Estoppel.

MR. WATSON: The insurance company says it won't pay for war, declared or undeclared, it usually is an exclusion. But they waived their right to enforce this exclusion. That means they're going to pay. Do you agree?

STUDENTS: Right.

MR. WATSON: But now they started losing people left and right. Now they are going to try to rescind or "get back" that waiver. Do you agree?

STUDENTS: Yes.

MR. WATSON: You are protected by something called estoppel . Put your finger over the "e." Put your finger over the "p-e-l." What do you have? "Stop." If you go to court and invoke estoppel, you are going to stop the insurance company from rescinding the waiver.

MR. WATSON: You basically do it in class action law suits. When one person waives their right, they can't reassert that right again, because you are preventing them from doing so by invoking the estoppel. Does that make sense?

STUDENTS: Yes.

MR. WATSON: It's like this. If I had a nonsmoking sign in here but I said, "Guys, fire up if you want, if you got 'em, smoke 'em. I'm not enforcing those non-smoking signs. Following me?

MAN: Right.

MR. WATSON: When I come in tomorrow, if I say, "Put the cigarettes out, guys, I'm going to enforce those non-smoking signs," you could sit back with your cigar and say, "I'm invoking estoppel. You gave up your right. You're not going to get it back." Dumb example, I know, but it works.

 

Stranger-Originated Life Insurance (STOLI) &
Investor-Originated Life Insurance (IOLI) Life insurance arrangements where investors persuade consumers to take out new life insurance policies, with the investors named as beneficiary. Investors loan money to the insured to pay the premiums and the insured ultimately assigns ownership of the policy to the investors, who receive the death benefit when the insured dies. The insured receives additional financial benefits, such as an up-front payment, a loan, or a small portion of the policy death benefit. Because the investors are the constructive applicants, owners, & beneficiaries of the policies, and they have no insurable interest in the insureds, many states view STOLI arrangements as fraudulent. ***

MR. WATSON: Here is a wild one. Stranger-Originated Life Insurance (STOLI) Life insurance arrangements where investors persuade consumers to take out new life insurance policies, with the investors named as beneficiary. Investors loan money to the insured to pay the premiums and the insured ultimately assigns ownership of the policy to the investors, who receive the death benefit when the insured dies. The insured receives additional financial benefits, such as an up-front payment, a loan, or a small portion of the policy death benefit. Because the investors are the constructive applicants, owners, & beneficiaries of the policies, and they have no insurable interest in the insureds, many states view STOLI arrangements as fraudulent.. A wealthy guy, (WG), loans money to an older guy, (OG), so the old guy can buy a life insurance policy on himself and then names the rich guy as beneficiary. Why would the old guy do this? The old guy might receive cash to do this or he might be able to name his wife as irrevocable beneficiary (maybe 10%). Doesn't cost him a dime. His beneficiary receives something when he dies. This is also called Investor-Originated Life Insurance (IOLI). After two years (incontestable period) he transfers the policy to the rich guy. The states are cracking down on this. In a lot of states, this is not permitted. But you need to understand this concept. Got it?

STUDENTS: Yep.

MR. WATSON: It is a money-maker for the rich guy.

1. Rich guy loans the money to the old guy to pay the premiums.
2. They negotiate a dollar amount that would be payable to the old guy's beneficiary and
3. When the old guy dies the rich guy would receive the death benefit tax free.
4. The old guy's beneficiary receives a small percentage.

But, states are cracking down on this because there is no insurable interest at the inception of the policy.