How
does
STOLI work?
Investors, working
through life insurance agents, induce seniors to provide
their names for a fraudulent purchase of a life insurance
policy. The
seniors immediately agree to cede control over the policy to
the investors. Although investors have control of the policy
from the beginning, legal ownership of the policy usually
occurs after the two year contestability period, but the
change can
occur earlier.
Seniors engaging in a STOLI scheme typically receive
some financial inducement at the
beginning of the transaction. Financial inducements may also be
paid as some portion of the proceeds, when and if the policy
is sold. The indispensible element in STOLI is a contract between the senior and the
investor where the senior gives up to the investor full or
partial control of the policy at the time of policy issue.
Investors profit by collecting the death benefit after the
senior dies or by selling the policy to unwary investors in
the Life Settlement Market.
