Washington, D.C. (May 29, 2008) — Arizona Governor Janet Napolitano has signed legislation (HB 2513) protecting seniors from a fraudulent use of life insurance called stranger-originated life insurance (STOLI).
Under STOLI arrangements, speculators induce seniors to purchase life insurance policies they otherwise would not buy, for the sole purpose of transferring the death benefits to the speculators. The speculators, such as hedge funds, aim to profit when the seniors die. The sooner they die, the higher the profit. Seniors caught up in these schemes can face unexpected tax liabilities, loss of privacy, inability to purchase life insurance for legitimate protection and estate planning needs, and possible legal liability.
“I am happy to see Arizona join the growing list of states taking action to protect seniors from this twisted use of life insurance,” said American Council of Life Insurers President and CEO Frank Keating. “STOLI arrangements turn the basic intent of life insurance on its head, but thanks to HR 2513, Arizona seniors have a new level of protection against these unscrupulous sales.”
“Life insurance was never intended to be used as a vehicle for financial speculation on human life, and NAIFA is glad to see the Arizona Governor take action to try to prevent STOLI”, commented NAIFA president Jeffrey J. Taggart, CLU, ChFC, LUTCF. Taggart cautioned, however, that “STOLI is often difficult to uncover and identify, and the states need to take strong action to not only prohibit STOLI but to prevent it and enable regulators to identify STOLI schemes.”
The Arizona legislation is based on two elements of a model law developed by the National Conference of Insurance Legislators, the national association representing state lawmakers with insurance oversight responsibilities. The legislation establishes a statutory definition of STOLI, classifies STOLI as an unfair trade practice and prohibits such transactions.
In addition to Arizona, STOLI legislation has been approved in West Virginia, Maine, Indiana, Kansas, Nebraska, Iowa, Oklahoma, Connecticut and Hawaii. North Dakota approved STOLI legislation last year. Several states—including California, Ohio, Illinois, North Carolina and Rhode Island—are considering legislation.
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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.