What is Life Settlement Fraud?
As with all important business transactions, policy owners and insureds must be careful not to be the victim of fraud or to commit fraud in connection with a life settlement. Individual policy owners and insureds are often older individuals who may be particularly vulnerable to fraud schemes. The life settlement industry wants to help older adults avoid such circumstances.
The life settlement industry has observed a particular kind of transaction associated with life insurance policies and wants you to be aware of this. The transaction is known as “Stranger-Originated Life Insurance”, or “STOLI”. STOLI usually involves an older person being approached by a licensed life insurance agent or another party to obtain new life insurance, with the policy being controlled, from the start and paid for by a third party. Some older individuals may even be offered compensation for his or her participation as the insured.
What makes this problematic is that the New York Insurance Law prohibits a person from initiating or facilitating the issuance of an insurance policy for the intended benefit of a person who, at the time when the policy is issued, has no insurable interest in the life of the person being insured.
In New York, an insurable interest exists:
- Between close family members who are related by blood or by law, or
- When the owner of the policy has a substantial economic interest in the continued well-being of the person being insured, if they are not related.
Be wary of any life insurance agent wanting to sell you a life insurance policy if you are told you:
- Do not have to pay the premiums,
- Would not be liable if someone else provides funds to pay premiums, or
- Will be paid to participate.
Although you may feel like you would be the victim of such a scheme or any insurance fraud, you may also be viewed as a participant depending on the circumstances, and there are consequences to those who participate in such activities, ranging from the cost and inconvenience of investigations to fines and criminal prosecution.
- Be sure to ask questions if you are approached or asked to participate in a transaction that sounds too good to be true.
- Be certain that you answer all questions asked on a life settlement application with true, accurate, complete responses.
- False or misleading information may be considered an attempt to defraud the insurer, the life settlement company, or both, which could also lead to consequences like the ones described above.
- Make sure you don’t leave any blanks on a life insurance or life settlement application that could later be filled in without your permission or knowledge.
Any person who knowingly presents false information with intent to defraud on an application for a life settlement contract is guilty of a crime and may be subject to fines and criminal prosecution. This includes false information about health and financial status. You or your estate may also become liable for money damages payable to persons or companies harmed by fraud. Participation in an attempt to defraud an insurer or a life settlement company may make it difficult or impossible to obtain insurance in the future.