From the Statehouse 2008 No. 03
by Jennifer Garrison
Feb. 3, 2008
FROM THE STATEHOUSE
The Ohio House passed a bill this week that will prevent life insurance investment scams.
Amended Substitute House Bill 404 is very important because it protects senior citizens and chronically ill Ohioans against a new predatory scheme called STOLI, in which investors bet on when seniors will die.
STOLI stands for Stranger-Owned (or originated) Life Insurance. Here is how it works: A salesman goes to a senior citizen or chronically ill person and convinces them to take out a life insurance policy. The salesman will offer to pay all of the premiums for the policy, and after two years the customer turns the policy over to the salesman’s company. It may sound too good to be true, and it often is. When the insured person dies, the investor receives the insurance money instead of the family of the deceased.
Instead of waiting for a consumer to come to them to sell their life insurance policy, investors go to vulnerable consumers. Even if the target has no policy to sell, they work to convince the customer to buy a policy and then turn it over to the investor, who can see a large profit.
Often these customers are told the investor will pay 100% of the premium on the policy. The customer is actually unknowingly taking out a loan for the entire amount of the premium from the investor. The policy is used as collateral for the loan. The investor thus is assured of getting his money back. If the customer dies during the two-year insurance contestability period then the estate is still going to have to pay back the premium that has already been paid by the investor. If the customer dies after that two-year period the entire amount of the life insurance policy gets paid to the investor.
Since customers are not buying the life insurance policy to protect themselves or their families (technically they are buying a policy to pay off the loan that pays for the policy) it becomes taxable. And the STOLI policy prevents people from buying other life insurance, since they are already covered. And since insurance rates spread the risk among all customers, these policies purchased solely as investments increase everybody’s life insurance rates.
Under HB 404, if you are borrowing the money to purchase a life insurance policy, where the policy itself serves as the sole source of collateral, you cannot sell that policy for five years. This period is meant to deter investors since they will now have to pay premiums on these policies for five years instead of two years, and it will protect the customer who can still sell it at some other time.
This bill passed unanimously, including my “yes” vote. I hope that the Senate will approve this bill quickly and send it to the Governor for his consideration.
You can reach Jennifer Garrison at her Columbus office at (614) 644-8728 or in the district at 373-2414 or by e-mail at jennifer@jennifergarrison.com. Her Web site is Riffe Center | 77 South High Street | Columbus Ohio 43215-6111 | (800) 282-0253 | District93@ohr.state.oh.us
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