PAT QUINN Governor
MICHAEL T. McRAITH Director
Illinois Department of Insurance
Louis G. Pukelis
FOR IMMEDIATE RELEASE: August 27, 2009
Illinois Department of Insurance Highlights New Viatical Settlement Law to Protect Illinois Consumers from Fraud
New law bans stranger–originated life insurance (STOLI) transactions as of July 1, 2010
CHICAGO – The Illinois Department of Insurance is highlighting a new law that will protect Illinois consumers who enter into viatical settlements and prohibit dangerous stranger-originated life insurance (STOLI) transactions.
Governor Pat Quinn on Monday signed Senate Bill 2091 to increase disclosure and supervision requirements for viatical settlements and to protect senior citizens from deceptive and unlawful STOLI transactions. Viatical settlements involve the sale of an existing life insurance policy for a cash payment that is less than the full amount of the death benefit in the life insurance policy. Once premised upon fatal illnesses like AIDS, transactions involving viatical or life settlements have grown into an unregulated hedge fund industry of $50 billion or more nationally. With the aging baby boomer population, the industry is expected to grow exponentially in the coming years.
STOLI transactions involve a third party paying a life insurance premium on behalf of a senior. The third party then sells the policy on a secondary market to other investors who hope that the senior dies rather than lives. In addition to this repugnant practice as a matter of public policy, such transactions can have devastating tax and other financial consequences for the senior.
“A viatical settlement can be an important financial tool for a well-informed consumer facing challenging circumstances,” said Michael T. McRaith, Director of the Illinois Department of Insurance, who testified in March before the U.S. Special Senate Committee on Aging in support of strong regulation of the life settlement industry. “This new law will protect consumers by imposing aggressive disclosure obligations, supervision requirements, and professional licensing and ethics standards for viatical transaction participants. While allowing legitimate estate- planning practices, the law protects our seniors as they deserve.”