Another STOLI (Strange Owned Life Insurance) Article. STOLI policies are not directly related to Life Settlements, however many STOLI policies enter the secondary market so they are commonly linked to a Life Insurance Settlement.
Grandma has a STOLI, and it has nothing to do with vodka.
Is this something to worry about?
The Indiana General Assembly thinks so. This morning a state Senate committee will hear testimony on a bill to make selling STOLIs — stranger- originated life insurance policies — a fraudulent act.
“The people who do these are buying insurance hoping for an untimely death,” said Tom Zurek, general counsel for Indianapolis-based OneAmerica Financial Partners. “That’s counter to what the life insurance concept is all about.”
Indiana would be the second state to ban the practice. House Bill 1379 cleared the House 75-18 last month. Today’s hearing before the Senate Insurance and Financial Institutions Committee will feature testimony from Frank Keating, head of the American Council of Life Insurers.
“These arrangements threaten the viability and value of life insurance,” said Keating, a former two-term Oklahoma governor.
Keating, who also served in both houses of the Oklahoma Legislature, has testified on STOLIs just once before — last year in North Dakota, which was the first state to pass a ban.
Stranger-originated life insurance policies really are a perversion of the life insurance concept. If left unchecked, it won’t be long before pathetic stories of duped seniors become common.
Generally, STOLIs work this way: Someone approaches a senior citizen about taking out a life insurance policy. The person promises to pay the premiums and provide a one-time cash payment in exchange for being named the policy’s beneficiary.
That person then collects when the person dies — the sooner the better.
There’s another unsavory wrinkle. The stranger who secured the policy could sell the benefit to someone else. At this point, it becomes a sort of investment in someone else’s death.
We’re all going to die, but how many of us want a bunch of moneygrubbers waiting for it to happen?
As OneAmerica’s Zurek noted, life insurance isn’t meant to benefit strangers. It’s supposed to pay off debts to help the surviving family members or to make sure that a business outlives its founder. That’s why the industry’s drawing big guns like Keating to testify in states like Indiana.
The STOLIs grew out of viatical insurance agreements, which emerged about 20 years ago. In a viatical agreement, a person with life insurance can sell that policy to a third party for cash.
Viaticals are popular among people with terminal illnesses, for example, because they can use the money to pay medical bills or other expenses before they die. The life insurance industry supports viaticals because of a key difference from STOLIs: The policy was in place well before the person knew he was near death.
Retired Indiana University insurance professor Joe Belth doesn’t think much of any aftermarket for insurance policies. He’s often made his case in his widely read industry newsletter, The Insurance Forum.
But today Keating and others will try to convince the Senate Committee that the proposed bill will leave viaticals in place while snuffing out STOLIs.
That’s worth drinking to.
Source: John Ketzenberger with the IndyStar
Recent STOLI articles here at Life Settlement News:
Amended Life Settlement Model Act Unanimously Adopted by NCOIL
