"For example, one participant (it's really difficult to call her a "victim," since she profited, as well) was dying from stomach cancer when she "saw a flier from what appeared to be a Catholic charity, says her husband, Dan. Mr. Bulpitt says the family of four was on food stamps after he quit his auto-dealership job to care for his wife." She and her family received some $8,000 for her participation."
The take-away here is that someone other than the annuitant apparently owned and paid for the contract. As we noted at the time, the whole plan was predicated on circumventing the principle of "insurable interest." As with Stranger Owned Life Insurance (STOLI), these plans have come under fire by the National Association of Insurance Commissioners, who recently "formed a new working group to evaluate next steps on a model bulletin designed to help regulators deal with the practice of stranger-originated annuity transactions (STOA)."
The NAIC is looking for ways to put the kibosh on these kinds of schemes, which cost the carriers - and, ultimately its policyowners and stakeholders - big bucks. Their first move has been to "[urge] insurers to conduct due diligence with detection methods." They could start, as we noted in February, by "[seeking] information about the buyer's relationship to this annuitant."
Of course, this presumes a certain intelligence on the part of Home Office Critters.