Much to the satisfaction of the American Council of Life Insurers (ACLI), the National Association of Insurance and Financial Advisors (NAIFA) and Life Insurance Council of New York (LICONY), New York legislators approved S.66009/A.66009, which was developed to protect senior citizens. According to a joint announcement by the three organizations, senior citizens in New York will have important new protections against a financial fraud called stranger-originated life insurance (STOLI).
In STOLI transactions, financial speculators or their representatives induce senior citizens to purchase life insurance, policies the seniors otherwise would not buy, solely to transfer the death benefits to the speculators. The speculators pay the premiums and then hope to profit by receiving the death benefits when the seniors die. This contrasts with a life insurance settlement, where a policy that was purchased in good faith, but is no longer needed or wanted by the policy owner is sold to a third party.
Seniors who participate in STOLI transactions may be asked by the speculators to commit fraud by lying on policy applications. Moreover, seniors may have to pay unexpected taxes on any money received from the speculators for participating in the scheme. STOLI schemes violate New York’s insurable interest statute, which bars the purchase of life insurance as a means to wager on human life.
“This legislation places New York among a growing number of states battling against STOLI and those who would abuse senior citizens,” Frank Keating, president and CEO of ACLI, said in the announcement. “The legislation specifically outlaws STOLI, and it gives the New York Insurance Department new tools to identify and deter fraudulent transactions. It also gives seniors considering a life insurance settlement new rights to assure they get a fair deal. We are happy to endorse this legislation.”
New York is the 27th state to enact legislation deterring STOLI.
“NAIFA is pleased to see New York join the many states that are taking action to protect consumers from abusive STOLI transactions,” said NAIFA President Thomas Currey, CLU, ChFC, LUTCF. “New York legislators have taken action to protect the integrity of the life insurance marketplace in a way that will curb STOLI abuses while maintaining the availability of life insurance products that will secure the financial future of New York’s citizens.”
The New York legislation also requires life settlement providers to become licensed and registered with the insurance department. In addition, life settlement providers must disclose to policy owners considering a settlement all information necessary to allow them to determine whether the transaction is in their best interest.
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