Stranger-Originated Life Insurance: How Seniors Can Fight STOLI Scams
Aaron Hall, November 18, 2010
I have represented a number of senior citizens who have been victims of a STOLI scam.
This article explains the basics of the STOLI scam on seniors and what they can do to fight back. In short, the seniors should turn the tables on the STOLI businesses to sell the insurance policy themselves rather than let the STOLI businesses reap a windfall.
Before we begin, it’s worth defining and describing some of the terms and concepts in the STOLI and ILIT process.
What is a STOLI?
A “stranger-originated life insurance” (“STOLI”) is life insurance issued on the life of someone as part of a transaction in which they agree to transfer the policy to a “stranger.” The new owner could be one person or a group of investors. Once the policy is transferred, the owner continues to pay the premium until the seller dies. When the insured dies, the investor gets paid. Those often targeted for this arrangement are seniors, ages 65 to 85, encouraged to sign up for new life insurance policies they will then sell for a buyout.
The STOLI concept is complex so here is more detail. In a STOLI transaction, an investor or its representative induces an individual, typically a senior citizen, to purchase a life insurance policy that the senior likely would not otherwise have purchased. The senior applies for the policy with a prior understanding that, after a certain period of time, the senior will need to come up with the money to pay the premiums or give up the policy to the investor, or some other third party, who would expect to receive the death benefit when the senior dies. The investor generally arranges for financing of the premiums during the time the senior owns the policy by means of non-recourse premium financing; that is, the only collateral for the loan is the insurance policy itself. Thus, the senior is not on the hook for any premium payments.
A STOLI is a premium financed life insurance policy, which simply means that the life insurance policy’s premiums are paid by a third-party. A STOLI is generally in an Irrevocable Life Insurance Trust (ILIT). . . .
Elderly, Fraud, Insurance, Life Insurance, Scams
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