Ohio Department of Aging
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April 2008
Director's Notebook
STOLI - Betting on Seniors' Lives
Stranger-originated life insurance, or STOLI, involves investment firms that seek out people who are insurable but have short life expectancies and who agree ahead of time to sell their policies for a fee. Historically, these firms have targeted people with fatal illnesses, but recent data show well seniors may be increasingly at risk.
In some cases, investors offer to buy a senior's existing life insurance policy. In other cases, they offer the senior the chance to obtain large amounts of life insurance for "free" or in exchange for some cash. The insured individual often is told that he or she can walk away from the debt without any cost or other liability. Generally, the investors loan money to their targets to pay the premiums for a defined period, usually two years. After that time, the insured senior is given the option of repaying the loan or transferring ownership of the policy to the investors to pay off the debt. The STOLI arrangement often is designed so that the insured will transfer the policy because the cost to repay the loan plus other fees and charges is too high.
These arrangements are structured to avoid state laws, which bar life insurance policy settlements for two years after a policy takes effect under most conditions. Also, under most life insurance policies, the life insurance companies can not contest the validity of the contract two years after the policy takes effect. If the insured senior dies during the two year period, the net death benefit will be paid to the insured's beneficiaries. However, those beneficiaries will have to repay the premium loan to the investor.
The Ohio Legislature is looking at STOLI policies because they are, in essence, the opposite of what life insurance is supposed to be. Most states have insurable interest laws that ensure that people who buy life insurance have a true and meaningful interest in the continued life - not death - of the insured. STOLI violates the public policy of prohibiting wagering on human life by allowing strangers with no insurable interest to profit from policy death benefits. Seniors should be wary of any deal that offers them a profit for simply allowing life insurance to be taken out in their names and they should not allow themselves to be rushed into such an arrangement.
For help or more information about STOLI insurance policies, contact the Ohio Department of Insurance Consumer Services Division (www.ohioinsurance.gov) or the Ohio Senior Health Insurance Information Program (OSHIIP) at 1-800-686-1578.
Ohio Department of Aging