Why
is
STOLI a problem?
Simply stated, STOLI
transactions circumvent existing insurable interest laws.
They are illegal.
Risk for Consumers
Seniors face legal liability and the risk of litigation. Any misstatements or lies
on the application could be violations of state fraud laws.
This includes questions completed by an
agent when they are acknowledged by the signature of the
senior. Hysteria over STOLI can damage the rights of
consumers.
Risk for Investors
Beyond the risk of losing their investment, investors
participating in STOLI transactions may also face legal
liability or the risks of litigation.
Risk for Insurance Companies
AALU, NAIFA and the ACLI state in their STOLI Primer
document that life insurance industry
suffers the
potential loss of reputation. This same document also
states that [a]ccording to LIMRA International, the lapse
rate for the types of policies most likely to be settled is
only 10 percent. STOLI has nothing to do with lapses.
(read what insurers
are saying about STOLI)
Some insurers also claim that
STOLI has forced them to more extensively underwrite
policies than in the past. If
this eliminates fraud and increases policy sales, however,
all should benefit.
Risk for the Settlement Industry
Deliberately engineered confusion between life settlements and STOLI puzzles
policy makers and opens the opportunity for the enactment of
inappropriate laws which can severely impair the basic
settlement industry.
