The Strange Saga of STOLI
Investors and middlemen make such big profits buying seniors' life-insurance policies that they're enticing people to take out unneeded insurance expressly for quick resale.
Investors and middlemen make such big profits buying seniors' life-insurance policies that they're enticing people to take out unneeded insurance expressly for quick resale. But their greed may be catching up with them.
Stranger Owned Life Insurance (STOLI) resembles playing the lottery when you know the winning numbers in advance. A broker or investor persuades an affluent person in his or her sixties or seventies to apply for a large life-insurance policy with the agreement to sell it soon, usually within two years. The investor lends the money to pay the premiums. So anything you clear would seem to be free and out of nowhere.
Row 0 - Cell 0 | When Should You Buy Life Insurance? |
Row 1 - Cell 0 | How Much Life Insurance Do You Need? |
Row 2 - Cell 0 | What Kind of Insurance Should You Buy? |
Row 3 - Cell 0 | Find Best Prices for Insurance |
STOLI got attention a few months ago after word spread that talk-show host Larry King had bought two policies totaling $15 million in death benefits and flipped them for $550,000 and $850,000. The investors clearly expect that King, who is 74 and has had serious heart problems, won't meet many more presidents before he dies. Yet King wasn't thrilled with his $1.4-million payoff; he sued for breach of fiduciary duty, claiming that he didn't realize the broker would get almost as much out of the transaction as he did, that he didn't know how the sale would be taxed, and that he didn't know creating and transferring the policies would make it difficult to buy additional life coverage (life insurers set limits based on income and assets).
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But commissions aren't the only problem. Deals with strangers crowd the volume of policies chasing after investors and lower the amount people can get for legitimate life settlements. It's also against the point of insurance, which has preferential tax treatment, to protect those who would suffer financially if you die. Several states are changing their laws specifically to put an end to STOLI. North Dakota, for example, prohibits the sale of a life-insurance policy within five years of its issuance if you've borrowed to pay the premiums (often a red flag of STOLI transactions), except in certain circumstances, such as divorce, disability or the death of a spouse. About 30 other states are weighing either a two-year or five-year waiting period.
Insurance companies are trying to stem STOLI sales by asking applicants if they plan to sell the policy. Saying no and then doing it is fraud and could invalidate the insurance. Some companies are refusing to sell large life policies to anyone over a certain age. The aim is to keep the investors' money available for honest life settlements and to protect older people who really do need new insurance for estate taxes or other purposes, not because they're greedy.
ALSO SEE: Cash In on Your Life
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
403(b) Contribution Limits for 2024
retirement plans Teachers and nonprofit workers can contribute more to a 403(b) retirement plan in 2024 than they could in 2023.
By Jackie Stewart Published
-
Roth IRA Contribution Limits for 2024
Roth IRAs Roth IRA contribution limits have gone up for 2024. Here's what you need to know.
By Jackie Stewart Last updated
-
Four Tips for Renting Out Your Home on Airbnb
real estate Here's what you should know before listing your home on Airbnb.
By Miriam Cross Published
-
Five Ways to a Cheap Last-Minute Vacation
Travel It is possible to pull off a cheap last-minute vacation. Here are some tips to make it happen.
By Vaishali Varu Last updated
-
How to Figure Out How Much Life Insurance You Need
insurance Instead of relying on rules of thumb, you’re better off taking a systematic approach to figuring your life insurance needs.
By Kimberly Lankford Last updated
-
When Is Amazon Prime Day?
Amazon Prime Amazon Prime Day 2024 runs Tuesday July 16 and Wednesday July 17, marking the 10th Prime Day event.
By Bob Niedt Last updated
-
How to Shop for Life Insurance in 3 Easy Steps
insurance Shopping for life insurance? You may be able to estimate how much you need online, but that's just the start of your search.
By Kaitlin Pitsker Published
-
Five Ways to Shop for a Low Mortgage Rate
Becoming a Homeowner Rates are high this year, but you can still find an affordable loan with these tips.
By Daniel Bortz Last updated