The Risks and Rewards of Stranger-Owned Life Insurance

The Nov. 2009 issue of the Illinois Bar Journal contains the following two articles addressing collectively entitled Stranger-Owned Life Insurance: The Risks and Rewards.   

Stephen M. Margolin (shareholder, Chuhak & Tecson, PC) & Valerie J. Freireich (partner, Chuhak & Tecson, PC), The Rewards: A Fictional Case Study, 97 Ill. Bar J. 568 (2009).

James C. Shanley (of counsel, Ungaretti & Harris LLP), The Risks and How to Minimize Them, 97 Ill Bar J. 569 (2009).

The introduction to the both of these articles is below:

Perhaps you’ve read about it or seen it on TV, or perhaps a client has approached you about it.  The plan works this was: an elderly person lets investors buy insurance on his life in return for a hefty cash payment.  At the end of two years, he can reimburse the investors the premiums they paid-plus interest-and keep the coverage, or he can drop it with no obligations.  And he keeps the cash up-front either way.  

It’s called stranger-owned life insurance (“SOLI”), and it’s a controversial but increasingly popular financial device.  Do the risks outweigh the rewards?  James C. Shanley is skeptical, Stephen M. Margolin and Valerie J. Freireich more sanguine.  Here are two sides of the SOLI story.