Washington, D.C. — Life insurers are applauding the signing of legislation intended to curtail a fraudulent use of life insurance called stranger-originated life insurance (STOLI).
Iowa Governor Chet Culver recently singed the bill, (S.F. 2392), which is intended to provide protection to senior citizens. In STOLI transactions, investors or their representatives induce seniors to purchase life insurance for the sole purpose of selling the death benefits to the investors. The investors plan to profit when the seniors die, and the sooner the seniors die, the higher the profit. In most cases, the seniors who sign the policy applications must mislead the insurance company about their intention to sell the policy to the investors. Seniors who participate in these schemes may face unexpected taxes and fees, loss of privacy and legal concerns.
“Life insurance was never intended to be an investment tool for hedge funds,” says Frank Keating, president and CEO of the American Council of Life Insurers. “It is designed to protect families and businesses. This legislation will help set things right.”
Source: American Council of Life Insurers
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