Washington State Enacts STOLI Bill With Mandatory Disclosure

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April 21, 2009 Tuesday 04:39 PM EST

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Washington State Enacts STOLI Bill With Mandatory Disclosure

Sean P Carr

OLYMPIA, Wash.

Washington Gov. Christine Gregoire signed a life settlement bill that includes what a supporter says is a first-in-the-United States mandatory disclosure of settlement options by insurers.

The law addressing stranger-originated life insurance transactions, or STOLI, was based on a model developed by the National Conference of Insurance Legislators. It defines STOLI as a fraudulent practice or plan to initiate a life insurance policy for the benefit of a third-party investor who, at the time of policy origination, has no insurable interest in the insured.

S.B. 5195 passed both houses of the state legislature with unanimous votes. It had the backing of both the American Council of Life Insurers and the Life Insurance Settlement Association.

The law bans life settlement agreements within two years of the policy being issued. Policies settled within five years must be reported to the state insurance commissioner's office.

LISA advocated for a provision that requires life insurers to inform policyholders 60 and older that they have the right to enter into a life settlement agreement. In a statement. LISA Executive Director Doug Head said this ensures seniors in need will be informed they have an alternative to surrendering their policies or letting them lapse.

Senior citizens are often targeted for STOLI transactions, which are often entered into through fraud and pressure by the investor, and can violate insurable interest laws and leave seniors and their beneficiaries vulnerable to unexpected taxes and fees, loss of privacy and other concerns.

Thirteen states to date have adopted anti-STOLI legislation, ACLI spokesman Jack Dolan said. Similar legislation is under review or has been filed in another 20 state legislatures, he said.

(By Sean P. Carr, senior associate editor, BestWeek: [email protected])

April 22, 2009