Sandy Praeger knows she can’t just come out and prohibit people from buying and selling their life insurance policies for profit, no matter how unseemly the process might be getting these days.

“But we can make these deals a lot less attractive,” said Praeger, Kansas commissioner of insurance.

That’s why Praeger, who also serves as president of the National Association of Insurance Commissioners, is urging the Kansas Legislature and lawmakers in other states to change laws to make so-called Stranger/Investor-Oriented Life Insurance policies illegal.

Under such policies, an outsider persuades someone – typically 65 to 85 years old – to take out a life insurance policy. The insured person gets an up-front payment and allows the outsider to pay monthly premiums, with the understanding that the outsider will assume ownership of policy and its eventual death benefit after two years, sometimes after another payment is made to the insured.

“There’s a concern that this is a little too much of a get-rich-quick scheme,” said Praeger, a Lawrence resident and former Lawrence mayor. “We’re just trying to protect people from participating in something that’s highly questionable. You’re buying insurance under false pretenses.”

Praeger testified last week at the Kansas Statehouse, telling members of the Senate Financial Institutions and Insurance Committee that Kansas seniors were particularly vulnerable to such “death futures” contracts.

Among other problems, she said, seniors engaging in such transactions could expose themselves to unexpected income tax liability and limited future insurability.

That, she said, and life insurance companies could be prompted to boost life insurance rates for everyone to make up for the payoffs being made on bets laid down by outsiders with no other interest in someone’s life other than an early demise.

“This effectively converts life insurance into an investment or security, and is essentially a wager on an individual’s life,” Praeger told the committee. “The sooner the death, the greater the profit.”

Current law prohibits anyone from selling off a life insurance policy within two years of its beginning. The law being considered by legislators in Kansas and another 19 states would extend that to five years, making such moves less attractive to investors who otherwise would be forced to pay premiums for five years before a potential payoff.

The proposed law also would require new policyholders to sign a document affirming that they have no intent to sell the policy as part of a previously arranged investment deal. That would give insurance companies an opportunity to declare such policies void, another tactic that could make such investments less attractive.

The proposed legislation would not prohibit so-called life settlements, in which people who legitimately bought life insurance later choose to sell off their future benefits once their need for such insurance no longer exists, Praeger said. Other exceptions also would go into effect to protect legitimate sales.

But the days of dealing in life insurance as a financial security – and not as a policy providing a family or business with a form of financial security – need to end, she said.

“This just doesn’t feel right,” Praeger said, from her office in Topeka. “We’ve had complaints and had people who have lost money in these deals. There is a lot, potentially a lot of money to be made on people dying. And if it doesn’t feel right, we do something to try to stop it before we have a lot of victims.”