White Papers

Stranger-Originated Life Insurance:  Free insurance? Found money? A good investment? A scam? What is it anyway?

Stranger-Originated Life Insurance (STOLI) is best thought of as a "mortality futures" transaction where certain parties have one expectation as to the future value of the article of trade that is the subject of the “futures contract”, while other parties have a different expectation as to the future value of that article of trade.  In a STOLI transaction, the article of trade that is the subject of the “futures contract” is the life expectancy or mortality of the insured.  While current marketing practices suggest STOLI is an easy way to make money with little if any risk and that all parties will profit, STOLI is actually a complicated transaction involving at least six parties to the transaction and where certain parties will profit and certain parties will lose, just like in any “futures contract”.  Explored herein are the various risks of loss and potential for profit from the perspective of each of these parties to the transaction.

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Fiduciary Pitfalls with Trust-Owned Life Insurance

One of the most overlooked consequences of the Uniform Prudent Investor Act (UPIA) is its effects on the administration of irrevocable life insurance trusts (ILITs). The trustee's duty to appropriately select, purchase, and monitor the insurance product that is often the ILIT's only asset has been brought to light by UPIA, and should be of concern to ILIT trustees.

A trustee has to obtain the needed data and determine the strengths and weaknesses of a given policy, then the trustee will be able to maximize benefits and minimize costs. Such management occurs when the ILIT trustee defines portfolio objectives, continually measures the policy's pricing and performance, identifies the policy's strengths and weaknesses, investigates available alternative products and makes necessary changes to the portfolio stemming from this information.

These steps are complex and may very well require the services of an expert, rather then rely on the representations of the agent selling the product. ILIT trustee's should consider seeking advice  with respect to a given policy's financial strength, claims paying ability, cost-competitiveness, price stability, cash value liquidity, and historical performance of invested assets.This assistance is provided by independent life insurance product research providers such as LifeLink Corp., Morningstar, and TheInsuranceAdvisor.com.

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