A new federal court case could affect what happens when the owner of a life insurance policy uses the policy as loan collateral and then sells the policy through a life settlement.
John Hancock Life Insurance Co. (U.S.A.) filed the suit in the U.S. District Court of Massachusetts against two parties — Wells Fargo and Monterey County Bank — that may have the right to receive some or all of the death benefits from two life insurance policies that John Hancock sold to Basil Mills in 2007.
John Hancock is not alleging that Wells Fargo or Monterey County Bank did anything wrong. It’s asking the court for permission to pay $3 million in policy death benefits and interest to the court clerk and let Wells Fargo and Monterey County Bank decide where the money should go.
Wells Fargo declined to comment. John Hancock and Monterey County Bank were not immediately available for comment.
The complaint is available on Law.com Radar.
What It Means
Financial professionals who have clients who want to sell in-force life insurance policies should consider asking the clients whether the clients have used the same policies as loan collateral.
Clients trying to sell policies used as loan collateral might need legal advice about that.
John Hancock is a Boston-based subsidiary of Manulife Financial.
Basil Mills, a California resident, bought a $2 million life insurance policy from John Hancock in June 2007 and also bought a $1 million policy from the company around the same time, according to the complaint.