Representatives has unanimously passed a bill, HB 404, that if
approved by the Ohio Senate will deal a body blow to
stranger-originated life insurance (STOLI) in the state. The
essence of HB 404 is to protect consumers, usually wealthy senior
citizens, from speculators who offer them a cash payment and agree
to pay the premiums in exchange for receipt of the death benefits
after the insured die.
The key feature of HB 404 is that it would deter STOLI by
establishing a strictly limited five-year moratorium on the sale of
life insurance policies that have the characteristics of STOLI.
Legislation similar to Ohio’s HB 404 is pending in 23 other US
states.
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Passage of HB 404 was welcomed by one of STOLI’s strongest
opponents, Frank Keating, president and CEO of the American Council
of Life Insurers. “The unanimous vote in favour of HB 404 sends a
clear message to the speculators and quick-buck artists that the
misuse of life insurance will not be tolerated in Ohio,” he
said.
He continued that the “carefully crafted bill” would not affect the
rights of legitimate policy owners. “It is vital to distinguish
STOLI from life settlements where policy owners acquired their
policies in good faith,” said Keating. “Sometimes, people who
purchased life insurance with the best of intentions, but who no
longer need or want the coverage, sell their policies to third
parties.”
Exceptions to conditions
The moratorium proposed in HB 404 would not apply if the policy
owner purchased the insurance with his or her own funds, or if
he/she needs to sell the insurance due to a change in life
circumstances, such as illness, unemployment, divorce or the death
of the intended beneficiary.
The need for decisive anti-STOLI legislation was highlighted in a
recent statement issued by industry body the National Association
of Insurance and Financial Advisors. “While most life insurance
companies do their utmost within the limits of the law to screen
policy applications for STOLI transactions, it is impossible to
catch all or even most of them,” stressed the association.
