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Insurance Abstract
A loan is secured by insurance policy collateral between a lender,
borrower with the insurance policy, and an intermediary. The intermediary
establishes a securities account and holds the insurance policy,
which designates the borrower as the beneficial owner and the intermediary
as the record owner. The borrower disburses the loan proceeds to
the borrower. In the event the lender notifies the intermediary
of a default, the intermediary is obligated to modify the insurance
policy by designating the lender as the beneficial owner of the
policy, thereby enabling the lender control the policy. The lender,
for example, may make premium payments upon the policy, or order
the intermediary to sell the policy.
Insurance Claims
1. A computer implemented method for securing a loan, made between
a lender and a borrower, with an insurance policy, the method comprising:
pursuant to a first agreement between said lender, said borrower,
and an intermediary: naming, by the borrower as record owner of
the insurance policy, the intermediary as record owner of the insurance
policy; holding, by the intermediary, said insurance policy as a
financial asset, in a security account; and disbursing, by the lender,
the loan to said borrower in accordance with a loan agreement; wherein
said first agreement permits said lender to become the record owner
of the insurance policy if said borrower is in default of said loan
agreement.
2. A method for securing a loan, made between a lender and a borrower,
with an insurance policy, the method comprising: purchasing, by
a borrower, an insurance policy; using, by the borrower, the insurance
policy as collateral for a loan agreement; entering, by the borrower,
into the loan agreement with a lender; entering, by the borrower,
into a loan collateral agreement with the lender and an intermediary;
naming, pursuant to the loan collateral agreement, the intermediary
as record owner of the insurance policy; and naming, in an event
of notification of a default of the loan agreement, the lender as
the beneficial owner of the insurance policy.
3. The method of claim 2, wherein said loan agreement is part of
said loan collateral agreement.
4. The method of claim 2, further comprising the step of: naming,
in the event of notification of a default of the loan agreement,
the lender as the record owner of the insurance policy.
5. The method of claim 2, further comprising the steps of: instructing,
in the event of notification of a default of the loan agreement,
the intermediary to sell the insurance policy; and providing the
proceeds of the sale to the lender.
6. The method of claim 2, further comprising the step of: paying,
by the borrower, premiums on the insurance policy.
7. The method of claim 6, further comprising the step of: paying,
by the lender in the event of notification of a default of the loan
agreement, premiums on the insurance policy.
8. The method of claim 4, further comprising the step of: naming,
in the event of notification of a satisfaction of the loan agreement,
the borrower as the record owner of the insurance policy.
9. The method of claim 4, further comprising the steps of: instructing,
in the event of notification of a satisfaction of the loan agreement,
the intermediary to sell the insurance policy; and providing the
proceeds of the sale to the borrower.
10. A system for collateralizing a loan for a lender, the loan
made with a borrower with an insurance policy, the system operable
pursuant to a security agreement between said lender, said borrower,
and an intermediary to: name, by the borrower as record owner of
the insurance policy, the intermediary as record owner of the insurance
policy; hold, by the intermediary, said insurance policy as a financial
asset, in a security account; and disburse, by the lender, the loan
to said borrower in accordance with a loan agreement; wherein said
security agreement permits said lender to become the record owner
of the insurance policy if said borrower is in default of said loan
agreement.
11. A system for securing for a lender, a loan made with a borrower
with an insurance policy, the system operable to: purchase, by a
borrower, an insurance policy; use, by the borrower, the insurance
policy as collateral for a loan agreement; enter, by the borrower,
into a loan agreement with a lender; enter, by the borrower, into
the loan collateral agreement with the lender and an intermediary;
name, pursuant to the loan collateral agreement, the intermediary
as record owner of the insurance policy; and name, in an event of
notification of a default of the loan agreement, the lender as the
beneficial owner of the insurance policy.
12. The system of claim 11, wherein said loan agreement is part
of said loan collateral agreement.
13. The system of claim 11, being further operable to: name, in
the event of notification of a default of the loan agreement, the
lender as the record owner of the insurance policy.
14. The system of claim 11, being further operable to: instruct,
in the event of notification of a default of the loan agreement,
the intermediary to sell the insurance policy; and provide the proceeds
of the sale to the lender.
15. The system of claim 11, being further operable to: pay, by
the borrower, premiums on the insurance policy.
16. The system of claim 15, being further operable to: pay, by
the lender in the event of notification of a default of the loan
agreement, premiums on the insurance policy.
17. The system of claim l3, being further operable to: name, in
the event of notification of a satisfaction of the loan agreement,
the borrower as the record owner of the insurance policy.
18. The system of claim 13, being further operable to: instruct,
in the event of notification of a satisfaction of the loan agreement,
the intermediary to sell the insurance policy; and provide the proceeds
of the sale to the borrower.
Insurance Description
[0001] This application claims priority to provisional application
no. 60/651,617, filed on Feb. 10, 2005, which is hereby incorporated
by reference in its entirety.
FIELD OF INVENTION
[0002] The present invention relates to a method and apparatus
for securing loans which hold as collateral against default one
or more life insurance policies.
BACKGROUND OF THE INVENTION
[0003] A secured loan is a type of security interest which arises
when a lender and borrower agree in a security agreement that the
lender, as the secured party, may take specific collateral owned
by the borrower if the borrower defaults on the loan.
[0004] Typically, the collateral is personal property; for example,
the collateral can be an automobile in the case of a car loan, or
real property, as in the case of a house for a mortgage. When the
collateral is either personal or real property, there are a variety
of mechanisms which permit a borrower to resolve its priority in
the collateral with respect to secured and unsecured creditors to
gain value from and title to the collateral in an efficient, reliable,
and timely manner. Generally, this is sufficient for the lender
to loan monies to the borrower.
[0005] At times it is desirable for a lender and a borrower to
secure a loan based upon an life insurance policy of the borrower.
The security agreement for this type of loan is typically a collateral
assignment recorded on the books of the insurance carrier that issued
the life insurance policy. Such a recordation may permit the secured
party to obtain title to the life insurance policy should the borrower
default on the loan. For example, the collateral assignment would
permit the secured party to obtain title to the policy over any
unsecured creditor. However, the secured party's rights to the policy
over other secured creditors of the lender is less certain, and
frequently varies from state to state.
[0006] Additionally, due to the nature of life insurance, the fact
that the secured party can obtain title to the insurance policy
after a default may not be sufficient. For example, the value of
the insurance policy may be contingent upon the payment of a premium.
If the borrower, as the insured party, also fails to make premium
payments, the insurance policy may be terminated by the insurance
company, thereby destroying the value of the collateral. This level
of risk may be unacceptable to lenders, thereby making it difficult
to use an insurance policy as collateral for a loan.
[0007] Accordingly, there is a need and desire for a system and
method for securing loans with one or more insurance policies.
SUMMARY OF THE INVENTION
[0008] Exemplary embodiments of the present invention provide for
a method and system for securing a loan between a lender and a borrower
using an insurance policy as collateral through the use of an intermediary.
The insurance policy is tendered by the borrower to the intermediary,
which becomes the nominal record owner of the policy, but administers
the policy pursuant to an agreement entered into between the lender,
borrower, and the intermediary. The agreement designates the borrower
as the beneficial owner of the policy, but permits the lender to
obtain beneficial ownership upon notice of a default of the loan
between the lender and the borrower to the intermediary. Thus, as
long as the borrower is not in default, the borrower is entitled
to all the rights associated with the insurance policy. Upon default,
the lender can direct the policy intermediary to act consistently
with the lender's obligation to the borrower including obtaining
beneficial ownership of the policy. For example, the lender makes
premium payments, or sell the insurance policy.
BRIEF DESCRIPTION OF THE DRAWINGS
[0009] The foregoing and other advantages and features of the invention
will become more apparent from the detailed description of the exemplary
embodiments of the invention given below with reference to the accompanying
drawings, in which:
[0010] FIG. 1 is an illustration of parties required to practice
the invention according to an exemplary embodiment of the invention;
[0011] FIG. 2 is an illustration of a loan structured in accordance
with the principles of the present invention according to an exemplary
embodiment of the invention; and
[0012] FIG. 3 is an illustration of a computer network which may
be used to implement the present invention according to an exemplary
embodiment of the invention.
DETAILED DESCRIPTION OF THE INVENTION
[0013] Now referring to the drawings, where like reference numerals
designate like elements, there is an exemplary embodiment of the
invention shown in FIG. 1 illustrating a borrower 300 which has
purchased an insurance policy 600 by paying an insurance company
400 a premium 610. In a preferred embodiment, the insurance policy
600 is a life insurance policy which names the borrower 300 as both
the record owner and the beneficial owner. Accordingly, the borrower
300 is responsible for making periodic premium payments 610 to the
insurance company 400 in order to maintain the insurance policy
600. The borrower 300 is also entitled to any benefit conferred
by the insurance policy 600. In another aspect of the invention,
other types of assets can be used in place of the insurance policy.
For example, a paid-up life insurance policy can be used in place
of a life insurance policy that has outstanding premium payments.
Furthermore, although described with reference to a single insurance
policy, the invention is not so limited and can utilize more than
one insurance policy for use as collateral.
[0014] According to FIG. 1, the lender 100 wants to lend the borrower
300 funds 700 designated by line 310 and secure the loan transaction
using an insurance policy 600 as collateral for the loan 700. An
intermediary 200 (discussed below) is also shown in FIG. 1.
[0015] FIG. 2 illustrates a loan transaction structured according
to an exemplary embodiment of the principles of the present invention.
The lender 100, intermediary 200, and the borrower 300 enter into
a three-way loan collateralization or security agreement 800. The
lender 100 and the borrower 300 also enter into a loan agreement
900. Although the loan agreement 900 is illustrated as a separate
agreement from the security agreement 800, the invention may also
be practiced by incorporating the loan agreement 900 within the
security agreement 800. An exemplary agreement 800 is shown in Appendix
A.
[0016] With respect to the lender 100, the security agreement 800
requires the lender to disburse the funds 700 to the borrower 300.
With respect to the intermediary 200, the security agreement 800
requires the intermediary 200 to create a securities account 210.
The original insurance policy 600 is modified, and the modified
insurance policy 600' is held in the securities account 210. The
intermediary 200 is further required to manage the securities account
210 as described in greater detail below. In another aspect of the
invention, the intermediary 200 holds the life insurance policy
600' in something other than a securities account, for example,
the policy can be kept in the intermediary's safe deposit box.
[0017] With respect to the borrower 300, the borrower 300 agrees,
in exchange to receiving funds 700, to repay the funds 700 in full
plus an amount of interest, and to modify the insurance policy 600
into insurance policy 600' to be held at the intermediary 200, such
that in the modified insurance policy 600' the intermediary 200
becomes the record owner while the borrower 300 remains as the beneficial
owner.
[0018] The security agreement 800 further permits, upon a notification
of a default of the borrower 300 by the lender 100, the intermediary
200 to modify the insurance policy 600' to change the beneficial
owner of the policy 600' to the lender 100 and require the intermediary
200 to follow the instructions of the lender 100. Additionally,
the lender 100 may instruct the intermediary 200 to have the policy
600' reflect the lender 100 as the record owner of the policy 600'.
For example, if the borrower 300 defaults on the loan, upon notification
of the default to the intermediary 200, the lender 100 becomes the
beneficial owner of the policy 600'. In its capacity as the beneficial
owner of the policy 600', the lender 100 can make premium payments
610 to the insurance company 400 in order to maintain the policy
600' (not illustrated). Alternatively, the lender 100 can instruct
the intermediary 200 to sell the policy 600' (not illustrated).
[0019] In another aspect, the security agreement 800 additionally
permits, upon a notification of a satisfaction of the borrower's
loan to the lender 100, the intermediary 200 to follow the instructions
of the borrower 300. For example, the borrower 300 may require the
intermediary 200 to modify the insurance policy 600' to change the
record owner of the policy 600' to the borrower 300. Additionally,
the borrower 300 may require the intermediary 200 to sell the policy
600'.
[0020] Although FIGS. 1-2 illustrate the lender 100 and the intermediary
200 as different parties, the invention may also be practiced if
the lender 100 and the intermediary 200 are the same party.
[0021] FIG. 3 illustrates that in a preferred embodiment, computers
1100, 1200, 1300, and 1400, respectively used by the lender 100,
intermediary 200, borrower 300, and insurance company 400 may each
be coupled to a network 1000. The network 1000 may be, for example,
the Internet or any other wide area or even local area network.
A portion of the network 1000, for example, between the lender computer
1100 and the intermediary computer 1200, may be a local area network,
while another portion of the network 1000 (or the entire network)
may be part of the Internet. Each party in FIGS. 1-2 can use their
respective computers 1100, 1200, 1300, and 1400 to determine whether
the conditions of the security agreement 800 have been complied
with before performing their obligations under the security agreement
800. Additionally, in another aspect of the invention, the computers
1100, 1200, 1300, and 1400 are used to implement additional features.
For example, an additional feature includes the computers 1100,
1200, 1300, 1400 communicating messages to set up the three-way
security agreement 800 and the loan agreement 900 sending and processing
instructions to disburse funds in accordance with agreements 800,
900, arid sending and processing instructions to modify the insurance
policy 600 into the modified insurance policy 600'. The computers
110, 1200, 1300, and 1400 may include at least one world wide web
server for supporting one or more web based applications for performing
the above described tasks. The web based application(s) may be accessible
on one or more intranets. The web based application(s) may also
be accessible over the global Internet.
[0022] While the invention has been described in detail in connection
with the exemplary embodiments, it should be understood that the
invention is not limited to the above disclosed embodiments. Rather,
the invention can be modified to incorporate any number of variations,
alternations, substitutions, or equivalent arrangements not heretofore
described, but which are commensurate with the spirit and scope
of the invention. Accordingly, the invention is not limited by the
foregoing description or drawings, but is only limited by the scope
of the appended claims. |