www.InsuranceStudies.org | Life Insurance Selement Series Edion No. IV
Life Insurance Selement Series Edion No. IV
Blurring the Lines BetweenTruth and Myth
What is a life selement?What is a STOLI?What is right for you?
By: Christopher Kampa, Director of Research ISI
February 25, 2010
A Request for ObjecveInformaon to Help Seniors
For the benet of consumers, we are asking all publishers inthe media to edit out fabricaons and sensaonalism in arclesthat describe nancial, legal, and rerement maers forseniors and to assure such arcles are thoroughly researchedand accurately reported. We are asking all publishers to helpeducate consumers with fair and useful knowledge. It is to thebenet of consumers that they are allowed to make decisionsbased on factual informaon.The recent upsurge in media coverage on topics related to sellinglife insurance policies (“life selements”) renews our aenonto the study ISI completed in September, 2009, “Portrayalof Life Selements In Consumer-Focused Publicaons.” Inthis study, it was observed that “informaon about the lifeinsurance secondary market (LISM) available to seniors is bothsparse and inconsistent.” While some recent media arclesdefend the valued opon enjoyed by a few seniors to sell alife insurance policy to investors,
other arcles blur the linesbetween truth and myth of the life selement opon and whatit can actually provide to seniors.
Misconstrued informaon about Stranger Originated LifeInsurance (“STOLI”) policies, such as in a recent arcle in theACLI News Release,
is a clear example of erroneous reporng.Misleading arcles like this leave readers misinformed,confused, and distrusul of something that should make themfeel good. Selling a life insurance policy as a life selement isnot right for everyone, but how can the consumer considerthe opon without fair and objecve informaon? There is afundamental need to educate consumers, parcularly seniors,about the advantages and disadvantages of life selementtransacons. But disbursing fear and emoonally-chargedlanguage in unfair, misinformed, misguided, and distrusularcles is being disingenuous to those who desire and need tochoose the best opons available to manage their rerementand estate nances.
Understanding the Investors’ Risks
The concept that investors are “beng on death” is wrong,extraneous, and intenonally designed to establish fear in thereaders’ minds. Death is certain for everyone. In all walks of life there are situaons where early or later death can havevarious impacts on subsequent events. Some survivors willbenet more or less, e.g., inheritance, business control, newfreedoms, or polical inuence. So, why describe investors inlife insurance policies as being any dierent than insurers whoare beng on the mortality of the insured they cover with lifeinsurance policies and annuies?The premise for accumulang a porolio of life insurancepolicies is essenally the same as wring a series of annuitycontracts. If the annuity provider were to write a single annuityon just one life, it could be argued that they were indeed bengon when that person will die. If the person dies sooner, theannuity writer experiences a greater prot. If that person liveslonger, the annuity writer could end up losing money. Whilethis could be considered a form of “beng on death,” mostpeople see this as a nancial business transacon designed toenhance the annuitant’s welfare in exchange for a risk weightedprot for the insurer. And likewise, life insurance selementsare designed to enhance the seller’s welfare in exchange for arisk weighted prot for the investor.
The concept that investors are “beng on death”is wrong, extraneous, and intenonally designedto establish fear in the readers’ minds.