I thought I would spent the next few blog postings covering a few related topics that are on the top of the minds of all caregivers – how to identify when Mom or Dad is making questionable investments or being taking advantage of through various financial scams.  I will discuss several of the more commonly-used practices of each so that you as a caregiver will be on the alert.

I’ve received a number of questions lately about STOLIs, or stranger-originated life insurance policies.  STOLIs are a type of life insurance policy in which another person provides the senior with a one-time cash payment and agrees to pay the policy premiums.  In return, that “stranger” is named as the beneficiary of the policy.  The senior gets immediate access to cash and has no premium to pay.  The stranger gets the policy payout once the senior passes.  The stranger can also sell the rights to the future benefit under the policy to a third person, usually an investment group or hedge fund.

If these STOLI arrangements make you feel a little uncomfortable, they should.  These schemes literally are investments in someone else’s death.  They thwart the true purpose of life insurance, which is supposed to provide the surviving family members the ability to pay off the debts and expenses of the deceased – not for the sole intention of providing someone else with the ability to seek a profit from another’s passing. 

Some have argued that STOLIs are really just another form of viaticals in which an insured sells off its rights to the policy benefit for something less that the benefit itself to get access to cash to pay for needed medical expenses.  The most common use of viaticals is by those with terminal illnesses.  The key difference between STOLIs and viaticals is that in the latter, the insured person knows they are going to pass soon and the policy was pre-existing.  Under a STOLI scheme, a senior is encouraged to enter into a policy simply to receive immediate cash outright regardless of their current health situation and investors then hope for and hedge on a person’s early death because it will result in higher profits.  

While STOLIs fly in the face of public policy, they are currently legal in most states thanks to, among other things, a wrinkle in the NAIC Model Viatical Settlement Model Law.  At least one state has recently outlawed them, and several states are currently considering legislation to do so, recognizing that these STOLI policies violate states’ laws regarding "insurable interests" that are designed to prevent a person from buying an insurance policy that has no interest in that person’s continued good health. 

My advice is to be on the watch for any large sums of money that Mom or Dad suddenly come into possession of, and to be sure that you are aware of all of the various types of insurance that they have currently in place.