Effective methods to stop STOLI
LISA supports the enactment of legislation to stop STOLI. Legislation must be carefully drafted to
effectively ban STOLI and protect the rights
of consumers. We support the NCOIL Model Act as the basis for
legislation throughout the country. The NCOIL Model Act
provides a targeted approach to protect life insurance
consumers and eliminate STOLI.
The insurance industry
supports the NAIC Model Act as the basis for legislation
regulating STOLI. The insurance industry approach to the problem
broadly assaults both consumers and the life settlement
industry. The NAIC Model Act creates harsh barriers for
consumers seeking to sell their policies and burdens
for life settlement companies seeking to act in the life
settlement market.
Furthermore, the NAIC Model Act fails to address the source
of the STOLI problem. STOLI is created during the
inception of the policy and the Model does not address this
issue directly.
Consumers have always been protected by the fact that life
insurance policies are legally incontestable after two
years. Under the new NAIC Model, the burden of proving the validity of a policy is shifted to the consumer
for five years after the purchase. To ignore this
historic precedent, is an assault on consumer protection
provided by the
two year contestability period. It
fails to engage informed consumers in the problem of STOLI.
It fails to recognize their rights and responsibilities. In
short, the NAIC Model simply punishes consumers. Lastly, many of the NAIC
Model provisions, though damaging to the life settlement
market, have no effect whatsoever in the fight
against STOLI.
