The Florida Insurance Consumer Advocate sends a caution to all Florida seniors. Stranger-Originated Life Insurance or “STOLI” schemes target seniors. They violate the interest of the senior and attempt to fraudulently circumvent the Florida Insurable Interest Law.

Investor-initiated life insurance is a violation of the insurable interest laws of every state in the country. It comes packaged as a “free” or “no-risk” insurance, but what is the actual cost and risk?

This is how the scheme evolves. An investor contacts a high net-worth, elderly, individual. The senior is then coaxed into purchasing a life insurance policy, since it is illegal for an investor to obtain insurance in their name. The investor agrees to pay the premium for the first two years. The intent is to “sell” the policy to a third party (stranger) at the end of the two years. After a STOLI policy is sold, there is financial speculation on the senior’s life.

It may be marketed under the title spin-life, charity-owned, investor-initiated life or option-life insurance. However it is marketed, it involves a stranger or group of strangers that profit from the demise of the senior.

The senior involved in a STOLI scheme commits fraud by deception. The senior is often encouraged to misstate their net worth to obtain the highest possible face value policy. If the insurance company rescinds the transaction, the senior can be liable for all transaction costs and commissions.

Payments made by the investors to the senior are taxable. Seniors are encouraged to “bet” the limit on their life. This frequently exhausts their life insurance purchasing capability leaving them unable to protect their own family or business. The senior may be promised a purchase price, but the purchaser is not under any obligation to meet that promise. After taxes, the senior could even suffer a sizable overall loss.

The Florida Insurable Interest Law is designed to protect our citizens.

The Office of Insurance Regulation (OIR) released a report February 6, 2009, indicating STOLI transactions are illegal under Florida Law and has provided legislative language to both the Florida Senate and the Florida House of Representatives seeking support to clarify Florida’s Insurable Interest Law to better protect consumers.