STOLI Transactions Negate The Industry’s Potential For Social Good
More recently, the image of life settlements was hurt by its association with what came to be called “stranger originated life insurance,” or STOLI for short. In STOLI transactions, brokers would often aggressively persuade older seniors into agreeing, for a fee, to have insurance on their lives purchased by third parties. Third parties would pay their premiums and collect the death benefits. “These abusive STOLI practices essentially promote the wagering on human life, negating the good, social purpose upon which life insurance is based,” the American Council of Life Insurers says in explaining its opposition to such “manufactured transactions.”
In Illinois, McRaith recalled a full-page ad in The Chicago Tribune inviting people between the ages of 55 and 85 to meet a celebrity and learn about free insurance. Once in the meeting, they were encouraged to participate in a STOLI transaction. While the fee income was appealing to many seniors, McRaith said, there often were adverse financial consequences that were not disclosed, including income tax obligations and the loss of public benefits due to the extra income from their STOLI fees. Life insurers also object to selling policies with a 100-percent certainty of having to pay death benefits.
