-
Photos
Dr. Kalinda Rose Stevenson
Beware The “STOLI” Insurance Scam That Offers You Big Money For Nothing.
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Stranger-Owned Life Insurance (STOLI) is offered to older people, with the promise of a big money payout, with no cost and no risk. Even if you are too young to be approached about such polices, it’s a fair bet that your parents or grandparents could be targeted, if they haven’t been already. It is in everyone’s interest to understand how this insurance scam works.
“Stranger-Owned Life Insurance (”STOLI”) is a rapidly spreading virus that is infecting both individuals and charities. The end result is likely to be a lose-lose-lose situation for the public, the insureds, their families, and the insurance and estate planning communities. In fact, everyone is likely to lose–except the promoter-marketers and third-party investors they assemble to finance what is clearly an end-run around centuries old insurable interest laws.” (Stranger-Owned Life Insurance)
This one hits close to home because my husband and I were told about this insurance plan, and even met with someone who promotes it. It sounds like a great deal. You “buy” an insurance policy, but you don’t pay anything for it.
This is how it was explained to us. A bank will buy an insurance policy on your life. The bank pays the premium. You pay nothing. After a period of time–the exact time was very vague–the bank would pay you a part of the value of the policy. So, if you “buy” a fifteen million dollar policy, at some period of time, you would collect a lump sum of money. The numbers were vague too, but we heard something about a million dollars on a fifteen million dollar policy after two years.
It sounded too good to be true at the time. Guess what. It is too good to be true.
After doing just a few minutes of research on Google, we found that the State of New York Banking Department has stated clearly what insurance polices banks can buy. And guess what, banks cannot buy insurance polices for people in whom they have no insurance interest. They can buy insurance for employees or officers of the bank or people who have outstanding loans with the bank. They cannot buy insurance on strangers. Bank Owned Life Insurance (”BOLI”)
This is the first big lie of the scam.
So who would actually buy an insurance policy on a stranger’s life? These are investors, who are deliberately misleading older people to believe in something for nothing. They know what they are doing, and have documents set up to capitalize on loopholes in insurance law, so that everything looks perfectly legal, but is designed to circumvent well-established insurable interest laws.
“Major life insurance organizations, including the American Council of Life Insurers (ACLI), the Association for Advanced Life Underwriting (AALU) and the National Association of Insurance and Financial Advisors (NAIFA) plan to crack down on companies that pay elderly people to buy life insurance with the intention of selling the policies to investment groups, reports the Insurance News Network. And they’re calling for changes in state regulation to help curb the practice.”
“These types of life insurance transactions, called stranger-oriented life insurance, or STOLI, has in the past been a way for policyholders to receive payment for life insurance policies they no longer need. The problem, notes a recent press release from the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), comes when financial companies seek out people who are insurable but have short life expectancies and who agree ahead of time to sell their policies for a fee.” (STOLI Alert)
So, even if the practice has not yet been outlawed directly in your state, it will be soon enough.
“The Ohio General Assembly has approved legislation designed to deter stranger-originated life insurance (STOLI) transactions in Ohio. Governor Strickland signed the bill on June 11, 2008 and it will take effect September 11, 2008. House Bill 404 strengthens Ohio’s existing Viatical Settlements Law, and establishes new restrictions intended to prevent STOLI.”
…“Ohio will become the twelfth state to adopt an anti-STOLI law. In Ohio and across the county, litigation continues regarding alleged STOLI transactions.” (Stoli Overview)
What about the two year time period? The reason for two years is that after two years, insurance companies cannot rescind policies for fraud.
The promoter who talked to us even suggested that this could be a good second business. He suggested that my husband get an insurance license to sell these policies, to–as he put it–”keep it under the radar.” That kind of language is also a clue that something fishy is going on.
There is also the “Tony Soprano factor” at work. Think about. Do you really want an investor to have a beneficial interest in your life? The sooner you die, the sooner the investor collects.
And what about the return you would get on such a policy. Would you really get a million dollars on a fifteen million dollar policy after two years? By the time the dust settles, you might end up with 5-6% of the value of the policy, provided the insurance company doesn’t rescind the policy. The real beneficiaries are the promoters and investors who set up these plans.
What is the lesson here? If something sounds too good to be true, it needs to be thoroughly invested. Even though the promise of lots of money with no cost and no risk is very tempting, something for nothing usually comes with a high price.
Dr. Kalinda Rose Stevenson
Author of “No Money Limits For Real Estate Investors”
National Best Books 2007 Awards
Winner
Business: Real Estate Category
-
Syndicate
