Life Line


« Stranger Owned Life Insurance | Main | Do You Want Your Life Insurance Taxed? »

Mr. Head’s Foot

The Life and Health Insurance Foundation for Education is a not for profit public education organization. As such we deliberately avoid controversy and do not advocate for or against any particular legislation or regulation. However, as part of our public education mission we feel we have an obligation to educate consumers about the many ambiguous and confusing activities that often surround our industry. Our purpose is to explain and clarify so the public can make informed and intelligent decisions regarding their insurance needs and options.

A case in point is a recent news item about a unique program and some ambiguous and confusing responses by Doug Head, the Executive Director of the Life Insurance Settlement Association (LISA), responses that seem to me to be contrived and self-serving. In my opinion Mr. Head first shot himself in the foot and then put it in his mouth.

The issue is a series of news stories about the purchase by Oklahoma State University of $250 million worth of life insurance on the lives of 25 elderly donors. At the death of these donors the University will realize the $250 million in death benefits. According to reports the premiums are being borrowed from a “financing facility” and the loans will be paid off at the death of the insureds. The program attracted a lot of attention, but the fact that insurance regulators in Oklahoma were reported to have OK’d the program in advance seemed to quiet any concerns that there was anything illegal or immoral about the program.

Enter Mr. Head. Here are excerpts of what he is reported to have said about the program:

Excerpt 1 - “In light of recent revelations regarding the mass purchase of investor-owned life insurance . . . state legislators and regulators should be aware of protectionist measures sponsored by life insurers.”

Comment - In the jargon currently in use in the industry this would not be considered “investor-owned life insurance”. It would be considered “charity owned life insurance”, a very common and popular reason to purchase life insurance. Many charitable organizations and donors elect to buy life insurance on donors to assure the charitable institution will continue to receive a stream of income from that donor even after he/she is gone. There is nothing sinister about this. Nor, to the best of my knowledge, did the program cause any life insurers to launch any campaign to seek “protectionist measures”, whatever Mr. Head thinks they might be.

Excerpt 2 – “The policies are pure wagering contracts . . . The scenario playing out at OSU is the essence of investor-initiated, stranger originated life insurance (STOLI). . . The OSU scheme abuses the tax exempt status of life insurance and the tax-exempt status of the not-for-profit university.”

Comment – This program is not “the essence of . . . (STOLI).” The essence of STOLI involves the use of a secondary market for the policies and was explained in my blog dated March 19. There is no indication anyone is planning to transfer the OSU policies to a secondary buyer. And yet Mr. Head, in what seems to me to be a complete non sequitor, immediately defends the life insurance secondary market, accusing life insurers of “condemn(ing) the secondary market because it supposedly will jeopardize the product’s tax exempt status.”

He then confuses the issue even further by bringing up the issue of insurable interest, contending that, despite insurance regulators’ prior approval of the plan, no insurable interest exists. He is quoted as saying, “. . . here a large institution is purchasing coverage on individuals in whom it has absolutely no insurable interest.” The existence of “insurable interest” is the bedrock of a life insurance transaction and is what separates the legitimate use of life insurance from a wagering contract. Insurance regulators would not have approved a program in which no insurable interest existed.

Consumers reading Mr. Head’s statements would have to question what in the world this is all about. Mr. Head seems to be upset about something that didn’t happen. Why?

Then he really gets wound up.

Excerpt 3 – “All the while the American Council of Life Insurors (sic) (ACLI) and its members have gone to considerable lengths to convince state regulators and legislators to pursue measures which punish legitimate life settlements . . . while doing nothing about pure STOLI schemes like this one.”

Comment – I do not and cannot speak for the ACLI, but I do know they and NAIFA and AALU are working to prevent the types of transactions, known to everyone but Mr. Head as STOLI, for all the reasons I indicated in my March 19 blog. There is no suggestion from any of these organizations that life settlements are by nature a bad thing nor are they trying to stop them. (Full disclosure, I also serve as CEO of NAIFA).

There are many other quotes that seem to me to be somewhat hysterical and very puzzling. Consumers reading this would have to question what in the world this is all about. Mr. Head seems to be upset about something that didn’t happen. Why?

Apparently Mr. Head had second thoughts about his own statements, later retracting his initial comments. Here are excerpts from a later release:

Excerpt 4 – “We now understand . . . that the recent OSU charitable life insurance is not what LISA considers to be stranger-initiated life insurance where only investors stand to reap substantially all of the death benefits owned by charities . . . LISA regrets any errors it may have made in its statements last week . . .”

Comment – So far so good, but then he goes on to say,

Excerpt 5 – “The OSU donor life insurance program clearly illustrates the mischaracterization caused by the use of many in the life insurance industry of ill-defined, charged terms like STOLI and SOLI.”

Comment – His foot is now clearly in his own mischaracterizing mouth. I am aware of no one but Mr. Head who has accused OSU’s program of being a STOLI program. But apparently wanting to have his cake and eat it too, Mr. Head now criticizes others for saying what only he has said.

Then, incredibly, he goes on to say that he believes OSU’s program would be a STOLI program under an NAIC proposal to make the kinds of STOLI transactions I described in my previous blog an unattractive investment. It would not. In my judgment he’s reaching in an attempt to justify the mess he has gotten himself into.

The two statements from LISA are so confusing and inconsistent that I could write a thesis. The basic point is that, based on OSU’s own public statements and in the absence of any evidence to the contrary - there has been none of which I’m aware - the OSU program seems very legitimate. Furthermore, I am aware of no insurance company which has criticized the program for being a STOLI or SOLI or even IOLI (a variation on STOLI involving charitable organizations). And finally Mr. Head’s allegations about the insurance industry’s attempts to stop legitimate life settlements are just plain wrong.

Consumers (LIFE’s audience) should be aware that there are very legitimate uses of life insurance beyond the typical family situation, including ones to support a charitable organization. LIFE’s web site ( contains solid information about many of those uses.

STOLI transactions as I defined them earlier are contrary to the public interest. But uninformed and contradictory rants such as Mr. Head’s do nothing to improve public understanding. The best way to keep your foot out of your mouth is to keep the latter shut when you don’t know what you are talking about.