Danis Insurance Center

WASHINGTON, D.C. (Sept. 8, 2008)—A major step was taken in the battle against the growing misuse of life insurance that could possibly harm countless senior citizens when California, the largest state in the nation approved legislation that will act to discourage abusive transactions.

Under the heading of California Senate Bill 1543, the bill was approved on August 29th by the California legislature. It is designed to attack stranger-originated life insurance (STOLI), which has become a national scandal. Financial speculators such as hedge funds are acting to persuade senior citizens to purchase life insurance only to transfer the death benefits to the speculators. In this situation, the speculators are hoping to profit through collecting the death benefits when the seniors die. Therefore, the sooner they die, the higher their profit.

Those seniors who have been caught up in these schemes have had to deal with a multitude of problems, including unforeseen taxes, the loss of privacy, the loss of eligibility for government entitlement programs and even legal liability.

Frank Keating, without is the president and CEO of the American Council of Life Insurers, has described STOLI as being an ugly and warped transaction that acts to undermine the real integrity of the life insurance marketplace. He says that the industry is happy that the California legislature has approved a bill that gives the California Insurance Department better tools for detecting and for cracking down on what he calls abusive STOLI transactions. If the bill is signed into law, California will become the 13th state to take steps to protect its senior citizens from these speculators whose only interest is in their early death.

A law that was developed as a model by the National Conference of Insurance Legislators (NCOIL) has become the basis for S.B. 1543. The National Conference of Insurance Legislators is the association of state representatives and senators and has insurance oversight responsibilities. A statutory definition of STOLI is establish by S.B. 1543 which classifies it as a fraudulent act. The bill makes it possible for the California Insurance Department to accumulate information from life settlement providers that will assist it in monitoring the market and identifying STOLI.

An amendment which would have allowed premium financing arrangements that are characteristic of STOLI was rejected by the legislature. The legislature clearly stands up in support of consumer protection by giving a “no” to STOLI financing schemes.

President of the National Association of Insurance and Financial Advisors (NAIFA) Jeffrey J. Taggart, CLU, ChFC, LUTCF, says that NAIFA’s members are very pleased with the California anti-STOLI legislation. He says that Sen. Machado has been a forceful and untiring advocate for legislation designed to deter STOLI and that he deserves the thanks of all California seniors, along with the professional insurance agent community.