BUSINESS

Inside the $10-billion death market

JARED MITCHELL March 10 2008
BUSINESS

Inside the $10-billion death market

JARED MITCHELL March 10 2008

Inside the $10-billion death market

JARED MITCHELL

These days, when

a salesman tries to sell American senior citizens life insurance, there’s a chance a total stranger intends to be the beneficiary. These “investors” take advantage of a lack of U.S. laws that prevent them from making speculative investments on seniors’ lives. Known as “stranger-originated life insurance,” or STOLIs, these policies are sold to investors who buy them at a discount of, say, 50 cents on the dollar payout. They then wait for the senior to die and

collect their windfall. Although highly lucrative for investors—said to include reputable Wall Street firms—for the U.S. insurance industry, it’s a growing worry.

Investing in dead granddads is, according to one California legislator, a US$10-billion industry. State Senator Mike Machado warns that over the next 10 years, U.S. insurance firms may be on the hook for US$100 billion in STOLI payouts. In most cases, brokers selling STOLIs let the seniors in on what’s going on, and offer them instant payouts, depending on the size of the policy. Some have received US$120,000 simply for signing their names to STOLL But crooked brokers often misrepresent STOLIs as little more than “surveys” for which seniors receive a token amount. Before the senior knows what’s happened the policy’s been sold into the secondary market, a practice known as “wet-ink deals.”

California and Indiana began hearings last week with an eye to banning or limiting it, following in the footsteps of Canadian jurisdictions. Ron Sanderson, director of policy-holder taxation and pensions at the Canadian Life and Health Insurance Association, says there have been no instances of STOLIs in Canada, thanks to a web of securities regulations and laws that prevent so-called “trafficking in life insurance.” Most provinces have specific legislation outlawing such deals and the others, including Nova Scotia and Alberta, are considering making the schemes illegal. M