Kevin McCarty, the Florida Insurance Commissioner, referred to the growth of "life settlement" products as a troubling development. The insurance industry in Florida already has a history of financial problems and consumer complaints.
Life settlement products pay for people's life insurance policies and in exchange, the policyholders name these investors as beneficiaries. Once the insured passes away, the investor collects the Florida life insurance proceeds. The life settlement industry has been around since the 1980s.
Recently, seniors have been targeted by investors. They are being encouraged to buy life insurance with the sole intent of reselling these policies to an investor. These types of arrangements are known as stranger-originated life insurance (STOLI) and are illegal under Florida law, because they violate the "insurable interest" requirement.
McCarty also commented that in addition to being illegal, these arrangements may be fraudulent. Seniors may be persuaded by investors to omit or misrepresent information on the application. For example, the senior may misrepresent his or her net worth to get a larger life insurance policy.
According to McCarty, state regulators are confronted with the problem of differentiating life settlements with STOLIs. He mentions that legislation should be pursued that will balance a person's right to sell his or her policy, while at the same time, discouraging STOLI arrangements.