Which insurance products are considered high risk for money laundering?

• A. Term life insurance.
• B. Group life policies.
• C. Fixed annuities.
• D. Individual cash value life insurance and annuity.

Answer: (D)

The key idea is that money-laundering risk is highest when a product creates, hides, and easily accesses large amounts of value. Cash-value life insurance and annuities fit that profile because they build up a cash value that the owner can access or move relatively freely through loans, withdrawals, or policy surrenders. This liquidity, combined with the ability to own policies through individuals, trusts, or corporate structures, provides a way to place illicit funds into a legitimate-looking asset, then layer or integrate them as needed—sometimes over long time horizons.

Individual cash-value life insurance and annuities are especially risky because they offer substantial cash value that can be tapped or surrendered, and they can be used to convert funds into a life-insurance asset with later access to cash, loans, or death benefits. This flexibility makes it easier to structure and disguise the flow and source of funds, which is why these products are flagged as high risk.

Term life lacks cash value, so it doesn’t provide a vehicle for moving or layering funds. Group life is tied to an employer and generally doesn’t offer the same owner-controlled liquidity or value accumulation. Fixed annuities, while they do have value, are typically less flexible in terms of access and ownership compared to cash-value products, making them a comparatively lower-risk vehicle for laundering.