Ohio Changes Settlement Rule

October 06, 2010 at 08:00 PM

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The Ohio Department of Insurance has adopted a rule governing the questions life insurers may ask to discourage possible stranger-originated life insurance (STOLI) transactions.

The Ohio STOLI questions rule was approved earlier this week following a review by a joint committee representing both chambers of the Ohio Legislature.

The department revised language used in the original STOLI draft in response to life settlement industry objections that the original version went beyond the requirements of a 2008 Ohio STOLI law.

In a STOLI transaction, investors arrange for a consumer to apply for life insurance. The investors pay the premiums in the hope of collecting the death benefits when the insured dies.

STOLI is banned by Ohio and most other states.

The STOLI law says insurer questions are "supposed to be related to detecting whether STOLI existed at the time of the application or policy issuance," says Brian Smith, president of

the Life Settlement Institute, Hudson, Ohio, who is also president of Life Equity L.L.C., Hudson, Ohio.

The original Ohio department draft of the STOLI questions rule addressed the "intent" of the policyholder in purchasing the policy, and that went beyond what the law required, Smith says.

"The proposed regulation made the suggestion that life settlements are STOLI," Smith says. "We just wanted to get the rule to conform to the legislation."

The final rule now states that "each application for a policy of life insurance issued in this state shall include questions reasonably structured to identify and prevent policies from being purchased for the purpose of entering into a STOLI transaction" as defined by the law.

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