Beware of strangers
Stranger/Investor Oriented Life Insurance not a good idea
FAIRMONT – The West Virginia Offices of the Insurance Commissioner warns against “Stranger/Investor Originated Life Insurance.”
Known as STOLI for short, these life settlement arrangements can come in different forms and names, said Dena Wildman, insurance complaint specialist supervisor for the state Offices of the Insurance Commissioner.
For example, if something happens that affects the finances or health of a consumer, he or she may no longer have the money to pay for a life insurance policy. A company may offer a specific payment to the person, continue paying the premiums, and will become the beneficiary of the death benefits, Wildman said.
In some cases, a stranger purchases a life insurance policy from another individual for a certain amount of money, she said. Another method is when a company contacts a consumer and offers to buy a policy from him or her for cash value. One of these arrangements could involve an individual entering into free or no-cost life insurance, or someone may buy a policy just to sell it to a third-party investor. In viatical settlements, different investors will invest in a life insurance policy on a person who has some sort of life illness.
“Anytime someone’s wanting to buy your policy from you, you should always question it,” Wildman said.
She said consumers should be careful when thinking about participating in a STOLI arrangement. Persons need to determine whether a tax consequence or other problems could result if they purchase one of these life settlement arrangements. It could also cause limits on future insurability or higher premium for additional coverage.
“The first thing to consider is someone is going to make money off your death, Wildman said. “Youu’re putting your life in someone’s hands who will profit from your death, which is a scary thing.”
“They may not give you what your policy is worth. (Consumers) are not going to benefit from what they paid over the years.”
STOLI arrangements often originate from investment firms that set up trusts specifically for this purpose and often target people who are 65 to 85 years old. West Virginia doesn’t license these types of companies, she said.
Wildman said the Offices of the Insurance Commissioner receives calls from people questioning life settlement agreements and refers these types of complaints to the auditor’s office.
People may consider a STOLI life settlement arrangement if they have an illness or are in a tough financial situation, but clients can obtain accelerated benefits from insurance firms without having to sell their policy to another company, she said.
In most cases, people establish a life insurance policy to take care of family in the event of their death and designate loved ones as beneficiaries. With an accelerated death benefit, a person gets a portion of the benefits now and family or friends also receive death benefits, Wildman said.
If a company offers to purchase a consumer’s life insurance policy, the person should always investigate the business and also look into the benefits and options associated with their existing policy.
Wildman advised consumers to “know their policy and check it out first before they agree to anything. They may have an accelerated death benefit available to them.”
Source: Jessica Legge
For life insurance premium financing (not STOLI), please call a premium finance professional at 1-888-973-8377
Coming soon, a site dedicated to Life Settlement Articles (LifeSettlementArticles.com)