We applaud the Star Tribune's editorial last Friday supporting greater consumer protection regarding life settlements and stranger-originated life insurance, known as STOLI. But Minnesota citizens need to understand more about STOLI and why passage of a bill currently before the Legislature is so important.

Minnesota consumers, especially senior citizens, are at risk of being victims of STOLI, an insidious financial practice that turns one's death into a chance for Wall Street to make a buck. These policies come about because a stranger entices unsuspecting seniors to take out a life insurance policy that has the seller, not a family member, as the ultimate beneficiary.

The policies are then packaged up as "death bonds" by and for Wall Street -- similar to the toxic mortgage-backed securities undermining our economy today -- with investors hoping seniors holding these policies will die fast so they can reap a huge payout. Instead of the beneficiary being a family with an "insurable interest" in wanting their loved one to live as long as possible, STOLI investors benefit and hope the person will die as soon as possible -- a ghoulish corruption of life insurance. The Minnesota bill has consumer protections to stop this practice.

Today, seniors can become ensnared in complex, costly and often fraudulent policies that expose them to unexpected debt and tax liability, or worse. STOLI uses complexity and deceit to hide vital information such as the tax liability for "loans" or advances on their death benefit in exchange for "free" insurance coverage, high interest rates on borrowed premium payments and loss of further insurability. STOLI often induces seniors to commit fraud by lying on the insurance application.

Complexity is the hallmark of STOLI, and its supporters attempt to confuse it with a legitimate practice of life settlements, an industry that the Star Tribune rightly points out is in need of more regulation. In fact, another Minnesota bill will be introduced soon to do just that. But contrary to what the editorial suggests, the life insurance industry is not opposed to legitimate life settlements. The current bill is only about STOLI and does not prohibit seniors from "cashing in" or settling their life policies when their plans or family circumstances change. Instead, the bill protects Minnesotans from the creation of STOLI policies in the first place by creating a clear test that distinguishes STOLI transactions from legitimate life settlements.

Also, the life insurance industry is not in favor of more lapsed, or canceled, insurance policies. Lapses of policies happen naturally as consumers make personal choices about their finances. They keep insurance prices lower for everyone. But the industry consistently encourages people to keep their policies as long as possible and not let them lapse. Policy lapses are another red herring to take the focus off STOLI.

Minnesotans also need to know that STOLI has other pernicious long-term effects in that it undermines life insurance as a way to protect families. If STOLI is allowed to continue, it will mean higher premiums, because insurance payments that should go to families are going to faceless investors. The bill rightly empowers family members to expose STOLI transactions and receive the benefits of the life policy, not Wall Street, which is something that life insurers wholeheartedly support. The last thing we need is to allow STOLI to erode another pillar of family financial strength.

Robyn Rowen is executive director of the Minnesota Insurance and Financial Services Council.