Measure to Codify Ban on Stranger-Originated Life Insurance
To put an end to stranger-originated life insurance (STOLI) schemes, the Assembly Financial Institutions and Insurance Committee cleared a measure (A-1263) on Thursday that would prohibit the practice and establish civil penalties up to $10,000 plus restitution.
The bill’s sponsor, Assemblyman Gary Schaer (D-Bergen, Passaic), issued the following statement:
“In 2019, the Supreme Court of New Jersey handed down its verdict in Sun Life Assurance v. Wells Fargo, ruling against the practice of stranger-originated life insurance. Existing state law allows life insurance policies to be procured only by those who stand to suffer financial loss from the death of those whose life is insured. The court ruled that an unknown individual or entity does not meet the standards set forth in our laws.
“The tragic loss of life should never be punctuated by a vulturine financial ploy. Life insurance was created to prevent families from becoming destitute after a loss; STOLI undermines the intended purpose by gambling on human life. STOLI policies have led to widespread abuse including; exploitation of the elderly, and manipulating policyholders through early cash outs. Ultimately, those who suffer because of STOLI policies are the beneficiaries life insurance is meant to protect.
“This legislation codifies into law the prohibition against STOLI schemes handed down by our Supreme Court. By eliminating the market for these predatory transactions, we strengthen our existing laws to protect New Jersey families.”