NAIFA is a leading proponent of state laws to protect consumers from stranger-originated life insurance (STOLI) transactions. This year, Arizona and Texas joined the ranks of 30 states with anti-STOLI measures on the books. Hard work by NAIFA state associations helped educate legislators about the dangers of STOLI and supported them during the legislative process. NAIFA members have bolstered the cause by meeting with their state and local lawmakers, writing letters and emails, making telephone calls, and testifying at hearings.
Unlike legitimate life settlement transactions, in which an insured person decides to dispose of a no-longer-needed insurance policy bought in the past for legitimate purposes, STOLI policies are intended from the outset as investments for people who have no emotional or other connection to the people being insured. NAIFA is opposed to STOLI transactions for a number of reasons:
- STOLI transactions violate the essential social purpose of life insurance—to provide financial protection to families or businesses.
- They skirt state insurance laws because they allow investors to buy policies the law would prohibit them from taking out on their own.
- They undermine the integrity of life insurance. If life insurance is seen as an investment product rather than a financial safety net, calls for governments to tax and regulate insurance benefits as investment income could gain traction. STOLI scams can give the entire life insurance industry a black eye.
- STOLI transactions sometimes prey on the elderly and their families, who may not understand all of the consequences of entering a STOLI arrangement. For instance, people cannot buy unlimited amounts of life insurance and STOLI policies can prevent them from buying policies they need for legitimate purposes. STOLI transactions also open them to potential fraud or tax liabilities.
The legislature in Delaware is currently considering a watered-down STOLI act. NAIFA-National is working with NAIFA-Delaware and the American Council of Life Insurers to oppose the measure and promote a strong anti-STOLI law based on model acts issued by the National Conference of Insurance Legislators. NAIFA is also working in Florida, New Jersey, and Virginia to promote anti-STOLI legislation in those states in 2012.
