Sunday, December 30, 2007

Consumer Alert: Stranger-Originated Life Insurance (STOLI)

Recent consumer alert from Ohio Department of Insurance:

The Ohio Department of Insurance advises consumers to proceed with caution when considering participation in a "Stranger/Investor Originated Life Insurance" (STOLI) life settlement arrangement. Consumers need to be fully aware that, unlike a traditional policy where the insured's loved ones are beneficiaries of the death benefits, in a STOLI arrangement, an investor group-strangers-will likely acquire an interest in the life of a participant.
Other possible consequences to consumers participating in STOLI arrangements are limits on future insurability, higher premiums for additional coverage and/or tax liabilities.
STOLI life settlement arrangements are typically promoted to consumers between the ages of 65 and 85 and include:
  • Allowing someone to purchase life insurance on your life in exchange for an immediate lump sum payment of some amount;
  • Entering into a contract for "free" or "no-cost" insurance on your life;
    purchasing a life insurance policy for the sole purpose of selling the policy to a third-party, whether immediately or in the future; or
  • Materially participating in transactions leading up to the purchase of a life policy for any of the above-stated purposes.

The following websites contain valuable information about investing, including information about STOLI life settlements: (non-profit broker-dealer regulation, consumer advisories) (non-profit website to educate consumers about scams) (state securities' regulators association; provides consumer investment advice)

You can verify licenses of agents, insurance companies, and life/viatical settlement providers and brokers at the Department's website or through the Department's toll-free Consumer Help Line 1-800-686-1526.


insurance phoenix said...

I've read briefly about these. I don't think insurance companies approve of these, nor do the department of insurance. But after a policy has been issued, a policy owner can do pretty much what he or she wants, right? I think that is the area the insurance companies cannot regulate.

Ernesto the Insurance geek said...

You're correct on both counts, the insurers can't regulate and a policy holder can do what ever they choose. I believe it would be within an insurers right to disallow these agreements as part of their underwriting guildlines.

The State DOIs can regulate if there is statute to back them up. Based on what they're trying to accomplish this is not going to be easy to codify.

I think their intention is to:

1 Protect consumers from potential harm either in the form of fees or more sinister activity.
2. Keep the more traditional use of life insurance. This will prevent insurers from raising rates.

Thanks for the comment.