I do not drink vodka, but this is not about vodka. I do know about life insurance, and most particularly, about stranger-originated life insurance, often referred to as "STOLI."
If you are approached by someone who suggests that you buy a life insurance policy and then sell it to them, seek advice about what you are being asked to do. If you participate in the program, you may find that you have also bought yourself a lawsuit, and it may wind up giving you an awful hangover.
STOLI works like this: An investor approaches an older person who presumably is in good health, and able to purchase life insurance. He suggests that the person purchase a large policy of life insurance and promises to loan them the funds to pay the first several years of premiums, and then buy the policy from them after the two-year incontestability period has passed.
The life insurance industry opposes STOLI. Life insurance has traditionally been sold to someone who has an "insurable interest" in the life of the insured person - either the person himself or a family member or a business he is involved with. Additionally, the cost structure of life insurance is based on the assumption that a certain number of policies will lapse without value, providing a profit for the insurance companies.
Many companies ask prospective insureds whether they intend to "flip" the policy after it is issued. Answering falsely is fraud, and may enable the company to rescind the policy.
Lake Woebegon, Garrison Keillor's hometown, is located in Minnesota. Saturday the governor of Minnesota signed a law outlawing STOLI. This makes more than twelve states in which the practice is unlawful.
A month ago a Minneapolis life insurance agent was charged with carrying out a fraudulent STOLI scheme in which he had, through misrepresentation, secured policies totaling $127,500,000 on the life of one man. If other people could benefit to the extent of $127,500,000 if I were to die, I think that I would, as did medieval kings, hire someone to taste my food before I ate it.
If someone who wishes you to purchase life insurance, which they would then buy from you, contact us first. We will be glad to review the situation for you and help you decide whether this is something you should do.
