Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Life Insurance

Swords Still Out Over Definition Of STOLI

Your article was successfully shared with the contacts you provided.

A panel discussion here was billed as a point/counterpoint on life settlements. But the 2 panelists decided to take a different direction.

They decided they would explore 3 approaches to defining stranger-originated life insurance transactions, which both panelists and audience concurred are not settlements and should be banned.

The intent was to highlight key reasons why supporters believe states should use one definition over the other in statutes barring STOLI transactions. They also aimed to air some points of contention these definitions bring up.

What happened was a type of point/counterpoint, after all. The two panelists disagreed with one another, and some members of the audience kicked in their own points, too.

This occurred during the 6th annual life insurance conference of LIMRA International, LOMA, Society of Actuaries and American Counsel of Life Insurers.

Michael Lovendusky, vice president and associate general counsel with American Council of Life Insurers, Washington, D.C., presented a definition from the National Association of Insurance Commissioners Viatical Settlement Model Act. He covered how NAIC defines STOLI characteristics, and mentioned that it would prohibit settlements with certain characteristics for a five-year period after policy purchase.

“The NAIC definition doesn’t outlaw any transaction,” he stressed. “It just makes you wait 5 years” before settling.

Douglas Head, executive vice president of the Life Insurance Settlement Association, Orlando, Fla., said repeatedly that LISA believes the NAIC definition casts too wide a net, risking the blocking of transactions that are legitimate settlements. He also questioned the meaning of specific phrases and terms in the NAIC definition.

“We say we can harpoon the monster–identify what’s wrong–without hurting the consumer,” Head said.

A similar exchange occurred over the STOLI definition developed by National Conference of Insurance Legislators, Troy, N.Y., which has a 2-year prohibition from point of sale, not 5-year, and has its own language. “This definition is based on a 100-year-old insurable interest law,” said Lovendusky.

Head said he thinks consumers will be concerned with this definition and about their rights. It too casts a broad net, he said, indicating he does not think an insurable interest solution will work.

He presented the settlement industry’s approach to STOLI, using still different language (see chart). “Our view is this will protect consumer value, give consumers options that they will be able to exercise, and open up the exchange of information” about the transaction, Head said.

Members of the audience kept peppering the speakers with questions and comments. Here are a few:

Question: Why not price the life products appropriately in the first place (so the rates aren’t lapse supported)? If you do that, why would it matter who pays for the contract–the insured or the non-recourse loan company?

Question: Why do an arbitrary selection of banning transactions for a 5-year period after policy issue? Why not have a 5-year incontestability period instead?

Question: If you get rid of lapse-supported pricing, wouldn’t you get rid of all the term insurance that’s in the market?


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.