Legislators today approved a bill designed to protect Iowa seniors from a fraudulent use of life insurance known as stranger-originated life insurance, or STOLI, transactions.

Senate File 2392, which Gov. Chet Culver is expected to sign, establishes a five-year moratorium on the settlement of STOLI transactions. It also provides a legal definition of STOLI and identifies it as a fraudulent act.

The bill keeps “fully intact the rights of good-faith policyholders to sell their policies if they no longer need or want their coverage,” said Frank Keating, chief executive officer of the American Council of Life Insurers (ACLI), which is lobbying for similar legislation in all 50 states.

In STOLI transactions, investors or their representatives induce seniors to purchase life insurance policies for the sole purpose of selling the death benefits to the investors. In most cases, according to an ACLI release, seniors who sign the policy applications must mislead the insurance company about their intentions to sell the policy to the investors.