Anti - STOLI Bill Passes
The life insurance industry's top legislative priority this session was passage of legislation that prohibits the sale of stranger originated life insurance (STOLI) or STOLI like products in Minnesota. I am pleased to report that both the House and Senate have passed the industry's "Insurable Interest Act" and sent the bill to Governor Pawlenty. The Governor signed the bill into law on Saturday
It was a hard fought battle given the considerable lobbying efforts against the bill. Opponents, led by the life settlement industry, suggested that there are few if any STOLI transactions occurring in Minnesota. They also suggested that the economic downturn has reduced this type of investment. However, the Minnesota Insurance and Financial Services Council the life industry's lobbying group, describe Minnesota as a haven for STOLI transactions aimed at our state's senior citizens.
The Insurance Interest Act prohibits the practice or arrangement of initiating a life insurance policy for the benefit of a third party investor who has no insurable interest in the policyholder. It restates the common law requirement of insurable interest into Minnesota statutes. A person must be either closely related by blood or law, or have a lawful or significant economic interest in the continued life of the insured. Those without an insurable interest would be basically "wagering on human life".
In order to assure that the sale of a policy does not constitute a STOLI like transaction, the new law prohibits entering an agreement to sale the policy for up to four years after its initiation. Last year, the industry had sought a five year moratorium. As a condition of changing a beneficiary within the first four years of the policy, the insurer can require the return of a written questionnaire that is designed to determine whether the change request relates to STOLI-like transaction.
It has been determined by the life insurance industry that these types of policy sale and time period restrictions will effectively deter STOLI transactions in our state. The new law is effective immediately.