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:
www.nasd.com (non-profit broker-dealer regulation, consumer advisories)
www.quatloos.com (non-profit website to educate consumers about scams)
www.nasaa.org (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 www.ohioinsurance.gov or through the Department's toll-free Consumer Help Line 1-800-686-1526.

Ten Most Asked Questions

Here you go: The most commonly asked insurance questions in the history of asking insurance questions:
1.
Q: Can someone get a life insurance policy on me without my knowledge?
A: Anything under the sun is possible. In order to get a life insurance policy issued, a person should have:
1. An insurable interest in the insured (you’re financially impacted if someone dies)
2. A need for the insurance $$ amount requested (no $5 million polices on your kids, unless she’s Miley Cyrus)
3. Access to personal information IE DOB, SSN, address, medical history
4. Signature of the insured (if insured is an adult)
5. Cooperation from insured if insurer requires paramedic exam (blood, urine, saliva, med history) or a physical exam. The people performing the exams are required to check IDs.
In order to collect on the policy, the person would need:
1. Cooperation from family or the executor of the estate to get death certificates.
2. Be outside the contestability period of the policy (usually two years from policy issue date) to avoid the scrutiny of the insurance company.
In the US, there are around 1,500 - 2,000 life insurance companies and they all do business in a similar manner with small differences in underwriting. None of them would make a profit by paying death claims on fraudulently obtained policies; so safeguards are put in place to guard against deception.
Without a paramedic exam or physical, there is a limit on how much insurance you can purchase. The industry limit seems to be around $250,000. So purchasing a $1M life insurance policy without the insured’s knowledge would be a challenge requiring a good amount of deception and fraud at policy issue.
This limits the size and type of policy someone could purchase. Small policies (say less than $100,000 for a young person, $25,000 for an older person) get less scrutiny. Group policies require only a few questions, but again limit the death benefit that can be purchased (usually only spouses can be named to purchase 50% of employee’s death benefit).
So, my conclusion; unless you’re the target of a well thought out deception, you’re probably just paranoid or watch too much TV.
2.
Q: My ______ (fill in the blank) died and we can’t find their life insurance policies. Where can I find this information?
A: There is not a central database of life insurance policies. I’ve written an article on searching for missing life policies: http://www.insuranceyak.com/2007/09/20/find-a-lost-life-insurance-policy/ Sorry for your loss and good luck with your search.
3.
Q: I need to file a claim against someone else’s policy. How do I find out who their insurer is?
A: A person or business’s insurance coverage is private information, so you can’t and you don’t. Their insurer will not accept claims from you and in most cases will not even speak with you. If the other party refuses to file a claim or admit fault, you’ll need to involve your insurance company or take legal action. In the case of any legal action, I would recommend involving a lawyer.
Keep in mind your insurance covers you, their insurance covers them. If you have bodily injury or property damage and someone else is the proximate cause, you could file a claim with your insurance company and allow your insurer to subrogate the claim against their insurance company.
4.
Q: What’s it like to work for _____(fill in the blank)? Is their training good? Will I really make $100K in my first year selling insurance?
A: There are a number of insurance companies who are always hiring sales agents, “account managers” or (my favorite) “manager trainees” : Farmers, Met Life, State Farm, Allstate, Primerica, New York Life, United American. The list goes on. There's a reason why they’re always hiring: They wash out 85-95% of all their new agents within two years, 98-99% after 5 years. These are SALES jobs; you sell you eat, don’t sell don’t eat. Some will pay you a stipend or advance your commission if you’re not selling, but the bottom line is you have to sell, week in, week out or your butt is out in the street. Now there always seems to be 1 out of 100 people who thrives is sales; kid natural who makes $100K her first year. If you’re one of these people, God has blessed you; may he continue to do so. Most other successful sales people just work hard and persevere long enough until they succeed. Average income for a first year sales agent? 30K if you work really hard and get a little lucky.
My advice: if you’re really interested in the industry, get a job working for a successful agent with a good reputation in the business and learn the ropes. When you’re ready, look for a good situation working for yourself selling what you like to sell.
See http://ohio-insurance-forum.blogspot.com/2007/06/q-how-does-insurance-agent-earn.html for a rundown on commissions earned and learn how big you’ll have to be in order to survive the business.
5
Q: A big expensive repair need to be done to my house, will my homeowners insurance cover it?
A: Homeowners insurance covers unexpected occurrences. Policies and coverage vary by state and policy, but repairs to a house are usually not covered unless the damage was caused by a covered risk.
Typically excluded items: earth movement, settling, faulty material, faulty workmanship, tree roots, old age & wear and tear, insect, vermin and pet damage.
So unless the proximate cause was something covered: fire, wind, falling objects, vehicle damage, building collapse, broken pipes you have no coverage. Water backup is an endorsement that usually has to be added to a policy; don’t have it, no coverage. If you call the insurance company claims center, they will log your call and start the count on number of claims you’ve filed in the past 5 years. Chances are 2 claims in three years will trigger a cancelation even if 0 dollars are paid on one claim. So you may want to hypothetically discuss this claim with YOUR AGENT.
See more about Homeowners coverage at:
http://ohio-insurance-forum.blogspot.com/2007/07/homeowners-insurance-covered-or-not.html

Tune in next week for questions 6 - 10

Track Down a Life Insurance Policy

Q - My Father died and we can't find his life insurance policies anywhere. My Mother died years ago and much paperwork had been misplaced. Any way to track down a life insurance policy?

A - Unfortunately, insurance policies are considered private transactions between an insured and the insurer. There is no single repository of life insurance policies that you can search. I'll touch on one service that could help you track down the policy if it's been purchased in the last 15 years or so, but you're really going to have to put on your CSI hat for this one. Most life insurance policies have premiums that need to be paid in order to keep the policy in force. Start any search by looking for the money trail.

First how old was the person who died? Did they die during their working years or after retirement?

For younger working people:

1. Inquire at their place of work, perhaps they had a group policy or payroll deducted premiums, examine pay stubs and question deductions.
2. Search check registers and bank statements for cancelled checks or direct withdrawals.
3. Check with the Financial Advisors or the Property & Casualty agency that handled other investments or lines of business for the deceased; sometimes they keep notes of when they discuss life insurance issues with their insureds.

For older people, the insurance products sold 25 - 30 years ago were a little different than what is popular today. Older people would have been more likely to purchase permanent Whole Life(WL) policies that could stay in force until age 100, give or take a few years. There were a few flavors of WL sold back in the day, some they paid until a pre-determined age (usually 60) other types they paid premiums their entire life. Since WL builds a cash value, the insured had a option to:

1. Pay premiums, keep policy in force.
2. Skip premiums and the policy will fund itself from cash value until that runs out.
3. Cancel policy and keep cash values.

Try to remember any discussion you've had regarding life insurance you had with the deceased. Ask their friends or neighbors if they ever had an insurance conversation with the deceased. This may give hints on where to look. Also:

1. Check registers, SS or pension checks(for deductions) savings & investment accounts for withdraws.
2. Check tax returns going back as far as possible (cashing a WL policy is a taxable event)
3. Rack you brains for mention of a salesman or insurance company. Search orphaned policies on https://external-apps.naic.org/orphanedpolicy/ ; if the company merged or was purchased by another company, this link may help.
4. Check unclaimed property office of the state. As a last resort, insurers pay death benefits to the state office if beneficiaries can't be found.

Finally, for newer policies, you can also check the Medical Information Bureau (www.mib.com) which has a database of all applications for individual life insurance that were processed during the past 10-15 years. The policy locator service costs $75 per search. Good luck in your search.
Ernesto

10 Mistakes People Make With Their Life Insurance

(At the end of this article -- -- you can learn how to get a FREE report that will benefit you and your family.) To learn how… read on!

Are you guilty of these mistakes?

If you answer yes to one or more of these questions… we need to talk immediately!

Did you buy a life insurance policy…

1. From an inexperienced agent? Do not buy from someone new to this business. Do you really want to place your family’s future in the hands of someone licensed for only a short while?

2. Over the internet? One simple mistake could see your cash going to the wrong person, or even worse -- the government.

3. That’s the wrong kind? There are so many different types of insurance policies and coverages. Remember… you don’t need the same policy as your neighbor!

4. For the wrong amount? Life insurance is for the loved ones you leave behind. They must be protected!

5. That costs too much? Overpaying for life insurance only hurts your loved ones. A good agent will have many options available. Do not settle for someone who can only offer you a policy from one company!

6. And not understand the purpose for the policy? You will need a different type of policy for estate tax planning than for mortgage repayment.

7. Over five years ago? Things change – work with someone who will review your policy regularly (every couple of years). In the old days, we used to call this “service after the sale”.

8. Based on an emotional decision? Again, situations change. Maybe you don’t even need that particular policy anymore.

9. To save for retirement? In all but the rarest circumstances, this is not a practical idea.

10. From a company without a strong financial rating? Not all life insurance companies are created equal! The financial stability of the company is critical! What happens to your family when that company goes out of business and your policy is worthless?


Contact me at sevanko@delinsadv.com or call me at (740) 369-1040 and I’ll send you my FREE report “How To Protect Yourself And Your Family If You Die… What Everyone Must Know About Life Insurance!” Or… if you have questions, call me at 740-369-1040.

Insurance Guy with the Funny Tie - Stephen Evanco


©2007 Delaware Insurance Advisors LLC – Stephen Evanko