Which is a red flag in insurance transactions indicating possible money laundering?

• A. Regular premiums paid from verified sources
• B. Policy loans repaid on schedule
• C. Premiums funded by third parties with unclear source
• D. Policyholder with long-standing clean record

Answer: (C)

In insurance AML, a primary red flag is when premiums are funded by third parties and the source of those funds is unclear or unverified. This raises suspicion because the person paying for the policy is not the policyholder, and if the origin of the money cannot be traced or justified, it can indicate an attempt to disguise the true source of illicit funds. Such scenarios trigger enhanced due diligence: identify the payer, confirm their relationship to the policyholder, request documentation showing where the funds came from, and assess whether the funding aligns with the policyholder’s known financial profile. In legitimate cases, third-party payments can occur, but they require transparent documentation of the funds’ provenance; without that, it signals potential money laundering. By contrast, regular premiums from verified sources, policy loans repaid on schedule, and a policyholder with a long-standing clean record all point to normal, traceable activity and lower AML risk.