We attended the National Conference of Insurance Legislators ("NCOIL") 2007 Annual Meeting in Las Vegas, Nevada. On November 17th, the NCOIL Executive Committee unanimously adopted an amended NCOIL Life Settlement Model Act (the "Act"). The Act was first adopted in November 2000 and last updated in July 2004.
The Act protects legitimate life settlement transactions and prohibits stranger-originated life insurance ("STOLI") transactions. The Act defines "STOLI" as:
[A] practice or plan to initiate a life insurance policy for the benefit of a third party investor who, at the time of policy origination, has no insurable interest in the insured. STOLI practices include but are not limited to cases in which life insurance is purchased with resources or guarantees from or through a person, or entity, who, at the time of policy inception, could not lawfully initiate the policy themselves, and where, at the time of inception, there is an arrangement or agreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy and/or the policy benefits to a third party. Trusts, that are created to give the appearance of insurable interest, and are used to initiate policies for investors, violate insurable interest laws and the prohibition of against wagering on life.
The Act is not effective until adopted by states. Click here to view the final version of the NCOIL Life Settlements Model Act.