LANSING – The House today passed a plan introduced by State Representative Barb Byrum (D-Onondaga) that bans the exploitative practice of Stranger-Originated Life Insurance (STOLI) and creates a more comprehensive system for the oversight of the life settlement industry.
"STOLI schemes are nothing more than a tool that financial speculators use to make money on the death of our most vulnerable residents," Byrum said. "Seniors are tricked into signing a STOLI agreement by financial speculators promising money and other gifts to entice the senior to participate."
Byrum's plan adds Michigan to at least 15 other states that have passed laws against STOLI. The legislation makes the unscrupulous investor accountable by making a STOLI a felony punishable by up to 10 years in prison and a fine of $100,000. It also outlines the responsibilities of the Insurance Commissioner related to the life settlement industry, including all licensing, investigation of complaints and oversight.
STOLI is a practice in which an individual, usually a senior or terminally ill person, is persuaded to purchase a life insurance policy on themselves for a substantial death benefit with the intent of selling the policy to a third party for quick cash. Victims are often promised cash or gifts that they may never receive. Financial speculators and hedge funds make a substantial profit from STOLI. These policies are also often bundled together and held as assets by hedge funds, which in turn profit as soon as the senior dies. The sooner the senior dies, the more money the hedge fund makes.
"Life insurance is a valuable tool to ensure the security of our loved ones, not a get-rich scheme for hedge fund managers," Byrum said. "Those participating in STOLI transactions give the life insurance industry a bad reputation. This plan will now hold these people accountable for their actions. I urge my colleagues in the Senate to pass this plan to protect our seniors and vulnerable residents."