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A Study on the Legal Issues Relating to Life Insurance Trust

  • Journal of Insurance and Finance
  • 2009, 20(2), pp.79-119
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management

Han, Ki Jeong 1

1서울대학교

Accredited

ABSTRACT

There has been a great increase in the use of life insurance trust since 1930. As Korean life insurance companies have been recently authorized to carry on trust business as well as insurance business, they became to be interested in producing and selling life insurance trusts. However, it is not clear whether or not such products are permitted under the current Korean law. This article tries to interpret whether they are allowed under the current law, and to suggest legislative reform for solving possible legal problems. The legal issues dealt with by this article are classified as follows. First, the question arises whether or not the trust of a right to insurance claim is legally possible under the Financial Investment Services and Capital Markets Act(FSCMA), which restricts trust properties to limited properties such as pecuniary claims. The answer should be affirmative, as far as the object o·f insurance claim is cash, in that the right to such an insurance claim can be categorized into pecuniary claim. It is suggested that the FSCMA be changed to include all kinds of properties as trust properties, on the basis that the restriction of trust properties has lost its ground nowadays. Secondly, when the trustee insures settlor’s life as a policyholder and an insurer, this act of insuring may amount to the self-dealing which is in principle prohibited so as to prevent the conflict of interests under the FSCMA. The current law is interpreted to bar such a self-dealing even though the settlor or the beneficiary of the trust consents to it, but it may be argued that this regulation is too excessive. Therefore, it is suggested that the law be reformed to allow such a self-dealing when the settlor or the beneficiary of the trust gives explicit permission to it after having been sufficiently notified about its contents. Thirdly, it is questionable whether the declaration of trust applies to a trust where the beneficiary of the life insurance becomes the trustee. The answer may be negative in the life insurance trust, but it seems safe to determine whether the declaration of trust is legal. The dominant opinion negates the validity of the declaration of trust under the current Korean law. It is suggested that the law need to be changed to allow it, on the ground that there is no sound basis justifying such a strict regulation.

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