Washington, D.C. (June 11, 2008) — Governor Ted Strickland (D) today signed legislation that will place Ohio at the forefront of efforts to combat a growing financial abuse that targets senior citizens and threatens to undermine the integrity of the life insurance marketplace.
The legislation, H.B. 404, aims to deter stranger-originated life insurance (STOLI), a contrived transaction in which financial speculators induce senior citizens to purchase life insurance they otherwise would not buy and then transfer rights to the death benefits to the speculators. The speculators, which are often hedge funds, hope to profit when the seniors die and the sooner they die, the higher the profit. The seniors roped into these schemes, however, can end up with unexpected taxes, legal liability, potential disqualification from government entitlement programs and inability to purchase life insurance in the future.
“Governor Strickland and the Ohio legislature have taken major steps towards deterring STOLI abuses by enacting a strong bill. It targets STOLI in two ways. First, it gives the Ohio Insurance Department and insurance companies new tools to identify STOLI schemes and monitor the marketplace. Second, it takes the economic incentive out of these abuses by establishing a carefully-crafted five-year moratorium on the settlement of STOLI policies. We are happy to see H.B. 404 signed into law,” said Frank Keating, president and CEO of the American Council of Life Insurers (ACLI).
Jeffrey J. Taggart, CLU, ChFC, LUTCF, president of the National Association of Insurance and Financial Advisors (NAIFA) commented, “STOLI transactions violate the essential social purpose of life insurance, which is protection, and NAIFA strongly opposes them. Life insurance was not intended to be used as a vehicle for financial speculation on human life. We hope many more states will follow Ohio’s example of taking forceful action against this type of abusive transaction.”
“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). “AALU Best Practices Committee Chair Larry Rybka testified strongly in favor of the Ohio legislation because it is a great example of how to deal with abuse while protecting legitimate practices.”
H.B. 404 establishes a five-year moratorium on the settlement of life insurance policies that were not purchased with the policy owners’ own money. For premium-financed policies, the loan must be secured with the policy owners’ own money and the arrangement disclosed to the insurer. This moratorium does not apply to policy owners who experience a specified change in life circumstances, such as illness, unemployment or death of the intended beneficiary.
In addition, H.B. 404 requires policy owners to disclose to the insurance company, if asked, whether any third party has obtained a life expectancy evaluation for settlement purposes in connection with the policy. Moreover, policy owners must disclose to the insurer any financial arrangement, such as a trust, that conceals the true owners or beneficiaries. H.B. 404 says that trusts or other business entities created to give the appearance of insurable interest and used to initiate life insurance policies for investors violate Ohio law.
###
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.