ACLI, LISA favor different approaches to regulating STOLI.

Representatives of the American Council of Life Insurers and the Life Insurance Settlement Association squared off at the Life Insurance Conference over which model regulation would better control stranger-originated life insurance transactions.

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The National Association of Insurance Commissioners has passed a model regulation that would prohibit STOLI-type settlements within five years of policy issuance. The National Council of Insurance Legislators' approach is for two years, but specifically defines and prohibits STOLI transactions.

The ACLI favors the NAIC version, said Michael Lovendusky, ACLI's vice president and associate general counsel. LISA sees the NCOIL approach as less intrusive, replied Doug Head, LISA's executive director. STOLI transactions currently take place after two years, the length of the insurance industry's contestability period.

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Under the NAIC model, the five-year prohibition would be in effect if policy premiums "have not been funded exclusively with unencumbered assets," wording intended to prevent life policies being bought without the insured/owner having paid any money. Typically, the third party initiating the purchase provides money to the owner/insured in the form of a loan.