Combine greedy promoters, amoral investors and gullible elderly people, and what do you get?

Stranger-owned life insurance, or STOLI, a morally bankrupt product perfect for the tenor of these times.

“It’s a pretty horrible practice,” says John Mangan, a lobbyist for the American Council of Life Insurers.

Mangan’s group supports Senate Bill 973, which would ban STOLI policies in Oregon.

STOLI combines the features of two other products. One is the viatical settlement, which let the terminally ill get a discounted payout on life insurance but became less useful when AIDS patients began living longer. The other was so-called “janitor insurance,” in which large corporations such as Wal-Mart bought life insurance policies on low-level employees without the employees’ knowledge and pocketed the proceeds when employees died. Congress outlawed so-called janitor policies in 2006.

Mangan calls STOLI policies an unholy hybrid of the two earlier practices. Typically, an insurance agent persuades somebody 70 or older to buy $1 million to $3 million in life insurance. The agent loans the old person the money for premiums and agrees to buy the policy after two years, when insurance companies can no longer cancel policies for fraud.

The agent then pays the original buyer a reward—say $100,000. In recent years, Mangan says, companies such as the now-bankrupt investment banks Lehman Brothers and Bear Stearns bought up such policies and then sold interest in them to investors around the world.

Thus investors had an interest in the rapid death of people they did not know.

“The quicker the senior dies, the more money the investor makes,” Mangan says.

The relationship between the insured and the investor violates Oregon law that says the holder of the policy have a legitimate “insurable interest” in the insured.

Cheryl Martinis, a spokeswoman for the Oregon Insurance Division, says promoters of the contracts advertise on the Internet and television and via direct mail, but since the old people who participate may feel they are getting something for nothing, they have little incentive to complain to her agency.

Mangan says ACLI has copies of STOLI contracts that were written on Oregonians and has seen ads on Craigslist pushing the practice.

Law enforcement officials in Florida and New York have investigated the bill’s strongest opponent—Coventry First, a Pennsylvania insurer often linked to STOLI policies.

Dave Fiskum, a lobbyist for Coventry, says SB 973’s prohibition against an insured person selling his policy for five years “goes too far.”

But SB 973 sponsor Sen. Suzanne Bonamici (D-Beaverton) says the bill allows legitimate sales at any time. The bill is scheduled for a hearing in front of the House Consumer Protection Committee May 15 at 3 pm.