The Life Insurance Settlement Association is asking regulators and life insurers to do more to stamp out stranger-originated annuity transactions.
"LISA adamantly opposes STAT schemes and believes that they should be banned because they harm life insurance consumers," Doug Head, executive director of LISA, says in a statement.
The investor who initiates a STAT buys a variable annuity that names an individual with a short life expectancy as the annuitant. The investor then collects the contract guaranteed minimum death benefits when the annuitant dies.
The National Association of Insurance and Financial Advisors, Falls Church, Va., recently made a formal decision to oppose STATs.
In some cases, according to news reports, "appointed agents have taken out advertisements in newspapers, or taken to the hallways of nursing homes and hospices, soliciting terminally ill individuals with short life expectancies to participate in these annuity schemes," LISA says.
Promoters may establish a trust or other "shell" to be used as the designated death benefit beneficiary, to hide the true identity of the beneficiaries, LISA says.
The National Associational Association of Insurance Commissioners, Kansas City, Mo., and the National Conference of Insurance Legislators, Troy, N.Y., should develop a model law prohibiting STATs, LISA says.
States should require the owner of an annuity to have an insurable interest in the life of the annuitant, and they should update suitability laws to require life insurers to evaluate the life expectancy of annuity buyers, LISA says.
"There is no reasonable circumstance that would justify an insurance company issuing an annuity to someone who is terminally ill or in severely poor health," says LISA President Russel Dorsett.