May 5, 2014 7:59 p.m. ET
Thousands of Florida teachers recently got a tantalizing offer: free life insurance, paid for by a group of rich investors they had never met.
To many of the teachers, it seemed too good to be true. Now they—and regulators—are trying to figure out if it actually is.
The offer to Pasco County's school district came from Ohio-based Pollock Financial Group, which promised to match the district's employees with investors eager for lucrative ways to invest their money.
Under Pollock's plan, the investors would potentially pay hundreds of millions of dollars for policies on the lives of district employees, from teachers to bus drivers and custodians, according to documents reviewed by The Wall Street Journal and interviews with district officials. As deaths occur, the investors, school district and beneficiaries of the insured employees would all receive payments. Policies would be obtained from a to-be-determined insurance company.
The proposal is one of the largest efforts by investors to acquire life insurance on people in a single transaction, say insurance-industry executives and lawyers.
Mark G. Pollock, a principal and life-insurance agent with Pollock Financial, a consultancy specializing in funding of employee-benefits programs, said in an email that the proposal provides "great value [for] the client in meeting its pension, health-care and employee-benefit plan costs."
Mr. Pollock declined to discuss details of the proposed program, saying he wanted to talk to regulators first.
Pollock Financial calls its offer "Benefit Stabilization Funding." The firm's materials say the plan can help government entities, some of which are laboring under increasingly tight budgets. Pollock Financial isn't affiliated with a Northern California firm with the same name.
Pasco, in the populous Tampa Bay area, is looking seriously at Pollock's proposal, though it wants the assessment of Florida insurance regulators before moving ahead, officials said. Florida regulators say they also are taking a hard look.
While many details remain to be determined, Pollock's mate rials spell out that investors would be responsible for paying premiums. "There is no cash outlay nor any financial guarantees required from Pasco County, its employee union, nor its members," according to one document. "All related transaction expenses are paid out of the policy death benefits," it says.
District officials said they discussed with Pollock various amounts of insurance that might be taken out, from about $200,000 to about $350,000 per employee, with proceeds to be shared among investors, the district and employees' designated beneficiaries. Christine Pejot, director of human resources for Pasco schools, said the district wants employees to be able to consent to being included in the program, but that was one of many details still to be sorted out and now is on hold pending the regulatory review.
Critics say the plan is a twist on a practice that proliferated in the mid-2000s. In those transactions, commission-paid agents induced thousands of older people to take out multimillion-dollar policies to flip to investors such as hedge funds, which aimed to reap more from death benefits than they paid in premiums. Several hundred civil lawsuits resulted, and some are still working their way through courts, alleging misrepresentation and other wrongdoing by agents, investors and the insurers themselves as many of the transactions didn't work out financially.
Most states, including Florida, ban third parties from directly taking out life-insurance policies on another person unless they are a relative, employer or someone else more interested in that person being alive than dead.
There "are just a lot of questions raised by this type of proposal," Belinda Miller, general counsel of Florida's Office of Insurance Regulation, said of the proposed Pasco proposal. "It may be perfectly legitimate. We just want to find out." The office hasn't set a date for concluding its inquiry.
Joseph M. Belth, professor emeritus of insurance at Indiana University's business school and a consumer advocate, said school administrators should keep in mind the substantial litigation that stemmed from the mid-2000s efforts of promoters and investors to profit from life insurance on the lives of others.
"My unsolicited advice to the district is to reject the plan," he said.
Pollock's presentation materials state that its proposals fall within the law.
"We are in a wait-and-see mode," said Alison Crumbley, Pasco school board chairwoman. She said the district is well funded but is considering the Pollock proposal as a way to provide "something additional [to employees], at no additional cost—as long as it is viable and it is legitimate."
Mr. Pollock said in an April presentation to the district that investors would be wealthy people who "had tax incentives to invest in this type of situation," Ms. Crumbley recalled.
The policies to be used would be "pri vate placement variable universal life," a type of coverage combining a death benefit with a savings component. Under such universal-life policies, interest income or other investment gains build up on a tax-deferred basis.
Investors' share of proceeds upon deaths would be their "initial capital contribution plus investment returns," a Pollock document says.
Write to Leslie Scism at leslie.scism@wsj.com
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