The National Association of Insurance and Financial Advisors has made a formal decision to oppose stranger-originated annuity transactions.
In a STAT, an investor unrelated to the named insured buys and owns a variable annuity that the investors purchased on the life of the insured, who is normally a terminally ill person.
The insured typically receives an up-front payment ranging from $2,000 to $10,000 for participating in the transaction and receives no further payment or benefits from the contract, according to NAIFA, Falls Church, Va.
The annuity contains a guaranteed death benefit rider, which guarantees that, at the time the insured dies, the investor-beneficiary will receive at least as much as was invested in the annuity and possibly more, depending on market performance and the terms of the rider. The investor will likely choose more speculative sub-accounts of the annuity as the investment vehicles for the STAT, NAIFA says. If the market performs well, the investor will benefit, but if the market does not do well, the investor’s investment is protected by the minimum return guaranteed by the GDB, the group says.
“Based upon the limited information available, STATs seem to share some of the same troublesome characteristics as stranger-originated life insurance transactions”, NAIFA President Thomas Curry says in a statement. “Most significantly, in both situations the transaction is initiated for the benefit of an investor who has no relation to the person whose life the insurance policy or annuity is based upon, and once the transaction is completed, neither the insured nor his or her beneficiaries will have any further interest in the policy or annuity’s benefits.”
Asked for comment, experts in the life settlement field backed NAIFA’s decision to oppose STATs.
“We actually agree with NAIFA on this,” says Russel Dorsett, director of Veris Settlement Partners, Rockville, Md. “This producer-initiated stuff is not good.”
A spokesman for the Institutional Life Markets Association, Washington, says ILMA also agrees with NAIFA about STATs.
“We oppose any such thing as STOLI (stranger-originated life insurance) and STATs, where no insurable interest exists,” says Jack Kelly, ILMA’s director of government relations.
The National Association of Insurance Commissioners, Kansas City, Mo., will hold a public hearing on STATs May 20 in Washington, and the National Conference of Insurance Legislators, Troy, N.Y., will examine the issue at upcoming NCOIL meetings.