How can a 'free-look provision' as part of a life insurance policy help criminals to launder money?
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A "free-look provision" is a feature included in some life insurance policies that allows the policyholder to cancel the policy and receive a refund of premiums paid within a specified period after purchasing the policy, typically 10 to 30 days. This provision is intended to provide policyholders with an opportunity to review the terms and conditions of the policy and make sure that it meets their needs.
However, this provision can also be exploited by criminals to launder money. One way this can happen is if a criminal purchases a life insurance policy with illicit funds and then cancels the policy within the free-look period to receive a refund of the premium paid. This refund can then be used to legitimize the illicit funds, effectively "cleaning" the money and making it appear to be proceeds from a legitimate source.
Another way that a free-look provision can be used for money laundering is by exploiting the freedom to choose the beneficiary of the policy. By designating a third party as the beneficiary of the policy, a criminal can effectively transfer money to that third party without arousing suspicion. For example, the criminal could use illicit funds to purchase a life insurance policy and designate a family member or associate as the beneficiary. The policyholder could then cancel the policy within the free-look period, receive a refund of the premium paid, and the beneficiary would receive the proceeds of the policy, effectively transferring the illicit funds to the third party.
It is important for anti-money laundering professionals to be aware of the potential risks associated with free-look provisions in life insurance policies and to implement appropriate controls to mitigate these risks. This may include conducting enhanced due diligence on policyholders and beneficiaries, monitoring cancellation patterns and refunds, and conducting regular training for employees to ensure they are aware of the risks and know how to identify potential instances of money laundering.