Measure to Deter Stranger-Originated Life Insurance Enacted Into Law
Click here to listen to ACLI President and CEO Frank Keating's remarks
Washington, D.C. (May 13, 2008) — Legislation (S.F. 2392) that will help protect Iowa senior citizens from a fraudulent use of life insurance called stranger-originated life insurance (STOLI) was signed into law May 10 by Governor Chet Culver, said leaders of three major life insurance associations.
Iowa is one of the first states in the nation to enact legislation aimed at deterring STOLI, which makes use of transactions designed to circumvent the state’s insurable interest laws. Governor Culver’s signature on this vital legislation means that Iowa seniors now have strong protections against these unscrupulous transactions, according to the American Council of Life Insurers (ACLI), the Association for Advanced Life Underwriting (AALU) and the National Association of Insurance and Financial Advisors (NAIFA).
“Life insurance was never intended to be an investment tool for hedge funds. It is designed to protect families and businesses. This legislation will help set things right,” said Frank Keating, president and CEO of ACLI.
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.
“As advocates for top-producing life insurance agents and their clients throughout the United States, AALU was the first organization to come out against stranger-originated life insurance in early 2004, and has consistently pursued state legislative solutions that protect legitimate uses of life insurance and life settlements,” said David Stertzer, CEO of the Association for Advanced Life Underwriting (AALU). “We applaud Iowa’s leadership in taking effective action toward the twin goals of dealing with abuse and protecting legitimate practices.”
“Lawmakers in Iowa have taken great strides in underscoring the true value of life insurance, and in protecting the interests of senior Iowans. Life insurance products are designed to create security for the financial future of individuals and their families and those who truly depend on them for their wellbeing,” comments Jeffrey J. Taggart, CLU, ChFC, LUTCF and president of the National Association of Insurance and Financial Advisors (NAIFA). “Insurance was never intended to be used as a vehicle for financial speculation on human life, and NAIFA supports the states taking strong action to try to prevent STOLI.”
The two leading associations representing state government officials responsible for oversight of the insurance industry have each approved model laws that target STOLI. These models keep fully intact the rights of policy owners acting in good faith to sell their policies if they no longer need or want their coverage. S.F. 2392 combines important features of both.
First, S.F. 2392 establishes a limited five-year moratorium on the settlement of STOLI policies, which is a major element of the model developed by the National Association of Insurance Commissioners (NAIC), the association of state insurance regulators.
Second, S.F. 2392 establishes a legal definition of STOLI and identifies it as a fraudulent act, which are two main features of the model developed by the National Conference of Insurance Legislators (NCOIL), the association representing state legislators with responsibility for insurance.
AALU, ACLI and NAIFA applaud Governor Culver, the legislature and Insurance Commissioner Susan Voss for taking the lead in protecting seniors in their state from STOLI abuse.
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About AALU: Founded in 1957, the Association for Advanced Life Underwriting (AALU) is a professional trade association representing 2,000 life insurance agents and financial advisors nationwide. Most members are engaged in complex uses of life insurance such as in business continuation planning, estate planning, charitable planning, retirement planning, deferred compensation and employee benefit planning. The mission of AALU is to promote, preserve and protect advanced life insurance planning for the benefit of its members, their clients, the industry and the general public. AALU's website can be accessed at www.aalu.org.
About ACLI: The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association whose 353 member companies account for 93 percent of the life insurance industry’s total assets in the United States, 93 percent of life insurance premiums and 94 percent of annuity considerations. In addition to life insurance and annuities, ACLI member companies offer pensions, including 401(k)s, long-term care insurance, disability income insurance and other retirement and financial protection products, as well as reinsurance. ACLI's public Web site can be accessed at www.acli.com.
About NAIFA: Founded in 1890 as the National Association of Life Underwriters, the National Association of Insurance and Financial Advisors comprises nearly 800 state and local associations representing the business interests of 60,000 members nationwide. Members focus their practices on one or more of the following: life insurance and annuities, health insurance and employee benefits, multiline, and financial advising and investments. NAIFA’s mission is to advocate for a positive legislative and regulatory environment, enhance business and professional skills, and promote the ethical conduct of its members. Visit NAIFA’s website at www.naifa.org.