We first blogged on "Dead Peasant" life insurance over 10 years ago:
"Stranger Owned Life Insurance (SOLI) is part of the “premium financing” phenomenon."
The concept certainly had its drawbacks: for one thing, it created (or could potentially create) a "moral hazard," tempting impatient beneficiaries with no familial or other personal connection to the insured.
But it had its uses, too: it enabled businesses to recover financially from the loss of key (or other) personnel. And there was this:
"Florida Atlantic University ... pays the premiums on life insurance policies for select boosters, who then name the university as beneficiary. The booster eventually shuffles off this mortal coil, leaving behind an endowed chair"
So, win-win.
But eventually the tide changed, and STOLI plans were outlawed. Which would have been the end of it, except for a nagging question: if all these plans are forced to go away through no fault of those who bought them, who gets all those premium dollars? On the one hand, the carrier assumed the risk in good faith, and (presumably) paid out one or more claims over the years. On the other, the folks who bought them certainly believed that the plans would eventually pay out, and didn't cancel them along the way.
On the gripping hand, "[t]wo federal appellate courts have affirmed, on different grounds, the cancellation of large life insurance policies ... permitting the issuing insurers to retain the premium paid for the policies."
Which is good news for the carriers, which had the use of the money for years, and now get to keep it completely risk free.
One wonders if there are any tax consequences to this.
"Stranger Owned Life Insurance (SOLI) is part of the “premium financing” phenomenon."
The concept certainly had its drawbacks: for one thing, it created (or could potentially create) a "moral hazard," tempting impatient beneficiaries with no familial or other personal connection to the insured.
But it had its uses, too: it enabled businesses to recover financially from the loss of key (or other) personnel. And there was this:
"Florida Atlantic University ... pays the premiums on life insurance policies for select boosters, who then name the university as beneficiary. The booster eventually shuffles off this mortal coil, leaving behind an endowed chair"
So, win-win.
But eventually the tide changed, and STOLI plans were outlawed. Which would have been the end of it, except for a nagging question: if all these plans are forced to go away through no fault of those who bought them, who gets all those premium dollars? On the one hand, the carrier assumed the risk in good faith, and (presumably) paid out one or more claims over the years. On the other, the folks who bought them certainly believed that the plans would eventually pay out, and didn't cancel them along the way.
On the gripping hand, "[t]wo federal appellate courts have affirmed, on different grounds, the cancellation of large life insurance policies ... permitting the issuing insurers to retain the premium paid for the policies."
Which is good news for the carriers, which had the use of the money for years, and now get to keep it completely risk free.
One wonders if there are any tax consequences to this.
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