States take shots at STOLI

Oklahoma and Connecticut have passed bills to discourage stranger-originated life insurance practices. STOLI transactions involve a third-party investor who asks an individual to purchase a policy for the specific purpose of selling it. Senate Bill 1980, which passed in Oklahoma, is based on a model law drafted by the National Conference of Insurance Legislators. This legislation provides a legal definition of STOLI, classifying it as an act of fraud. Also, Connecticut passed legislation that defines STOLI as a practice, act or arrangement to initiate a life insurance policy by a third-party investor who at the time of policy origination has no insurable interest on the insured. This definition, also based on NCOIL’s model law, covers cases in which the insured has a verbal or written agreement to transfer the policy at the time of initiation, as well as trusts that are created to give the impression of insurable interest. The two states join West Virginia, Indiana, Maine, Kansas, North Dakota and Nebraska, which all have adopted anti-STOLI laws.