Will Schwarzenagger’s Life Insurance Bill Signing Truly Protect Seniors?

By Lisa Olsen Posted in Life Insurance News

What Is The Governor’s Life Insurance Bill

The main purpose of the bill passed into law, due in part to the effort of California Governor Schwarzenegger is aimed at protecting seniors against fraudulent or “Stranger-Oriented” life insurance policies. Democratic Senator Ron Calderon took the bill, Senate Bill 98, to the house floor and it passed recently.

What Is Stranger-Originated Life Insurance

The bill aims at protecting seniors, those 70 and over, from STOLI, or stranger-originated life insurance. STOLI is a transaction between an investment group and a senior citizen. The investment group usually has no insurable interest on the life of the senior. The senior buys insurance on his or her own life based on an agreement that they will sell the death benefits to the insurance investment group after a two-year period of contestability has expired. The investors or another broker is brought in and usually arranges a loan to pay the premiums for the two year contestability period. After the two year period the policy is transferred to the investment group and they pay the premiums until the senior citizen passes away, allowing the investors to receive the death benefits.

Senate Bill 98

The bill, passed unanimously in both houses, targets the scams that some investors or other interest groups use to get senior citizens to sign over life insurance policies. The bill blocks the ability of the investment group to take out a life insurance policy for someone or even to allow the senior citizens to sign their policies over to the investment groups.

Senate Bill 98 is one of several legislative attempts to prevent or hinder senior abuse. Every year thousands of senior citizens fall prey to scam artists and those that claim to be financial advisers and investors. Gov. Schwarzenegger’s bill is one of many designed to stem the tide and save senior citizens from financial ruin.

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