FOR IMMEDIATE RELEASE
Charbonneau: New law helps prevent profiting from death of insured
Human life should not be wagered on, says State Senator
(STATEHOUSE) – Sen. Ed Charbonneau (R-Valparaiso) has taken a leading role to prevent investors from wagering on human life and profiting from the death of the insured.
Legislation Charbonneau helped champion through the Senate aims to protect consumers -- often senior citizens -- from being persuaded to take out life insurance policies for the sole purpose of selling the death benefits.
Gov. Mitch Daniels signed House Enrolled Act 1379 into law today.
Charbonneau said life insurance policies are more and more often being treated as investments and senior citizens are being targeted in a new trend for stranger-originated life insurance policies (STOLIs).
Here is how it works: senior citizens are asked to take out life insurance policies in their own names specifically to sell the death benefits. Seniors receive a reduced, one-time cash payment and the investors agree to finance the premiums in hopes of profiting from the life insurance policy by being named the beneficiary. When the senior dies, the investor collects the death benefits. Beneficiaries sometimes sell the benefits to someone else.
“The sooner the individual passes away, the higher the profit for the investors,” Charbonneau said. “Senior citizens need to be protected from the practice of stranger-originated life insurance policies, a trend that undermines the purpose of life insurance.”
Charbonneau sponsored the new law that will prohibit the promotion of purchasing a life insurance policy in connection with stranger-originated life insurance.
Not only could this law help deter the abuse of life insurance policies, but consumers who are unaware that upfront payments from investors are generally taxable and legal fees accompany the transaction could be protected, Charbonneau said.
Charbonneau hopes this mandate will also protect senior citizens participating in stranger-originated life insurance policies that may use up their life insurance capacity and be unable to purchase life insurance needed for estate planning.
In addition, Charbonneau said participants of stranger-originated life Insurance policies could also face litigation from insurance companies.
“Life insurance policies are used to help families cope financially following the death of a loved one and helps businesses deal with the loss of an owner or employee,” Charbonneau said. “Life insurance is not to be used by investors of STOLIs who wager on human life and profit from the death of the insured.”
Some individuals sell insurance policies to a third party for cash, a trend called “viatical settlements.” This is a method often used by terminally ill people, Charbonneau said. STOLIs developed from viatical insurance agreements and unlike STOLIs, life insurance companies support viaticals because the policy was in place before the person knew they were ill.
According to Charbonneau, Indiana is the third state to regulate STOLI transactions. Other states like Kentucky and West Virginia followed Indiana’s lead. He said the American Council of Life Insurers (ACLI) will work with the Department of Insurance in order to implement the new law.
Sen. Charbonneau represents Senate District 5, which includes Starke County and portions of Porter, LaPorte, Marshall, Jasper, Pulaski, and St. Joseph counties.
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