10 September 2013 0 Comments

STRANGER ORIGINATED LIFE INSURANCE (STOLI)

not a good liarSTOLI might also refer to “Stranger Owned Life Insurance”, but here I want to discuss “originated” as opposed to “owned?”   The most insidious case of STOLI would be the two women in their 70’s  who, in 2008 were convicted and sentenced to life in prison, for killing two indigent men in Los Angeles in order to collect $2.8 Million of life insurance benefits.

This pair of sweet old ladies convinced two street people to allow them to apply for life insurance on their lives in exchange for being provided lodging and food.  They cleaned these two men up and somehow convinced several life insurance companies that they had an insurable interest in them as the result of a bogus joint business venture.  The policies were issued with the women as the owner/beneficiaries.   Several insurance companies were used and each policy was kept to a reasonably small amount so that the insurance companies would issue policies with little scrutiny. But when it all added up, between the two insured’s, $2.8 Million of death benefit was issued.

For two years these new “business partners” paid the premiums and maintained their indigent “partners” in rented facilities and kept an eye on them.  Then, shortly after the policies’ two year contestability periods expired, these two men met untimely deaths.  I don’t recall the details, but one of them was run down by a car in an alley by a hit-and-run driver.   As it turns out, the septuagenarians killed them and collected the insurance proceeds.

As a result of this case, insurance companies have taken precautionary steps to cross check when multiple applications are being submitted simultaneously, so a similar scam would be more difficult to carry out today.

This case most definitely involved Stranger Originated Life Insurance.  Though less onerous in nature, today there are still several situations of STOLI where an unrelated person might approach you with the offer of “free” life insurance in exchange for receiving a portion of the death benefit, or for transferring the  policy’s ownership to them after the two year “contestable” period expires.  If this happens to you, I encourage you to remember the old adage:  If something sounds too good to be true, it probably is.

With this said, next I’ll be discussing the pros and cons of STOLI.

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