Jane Dotson
Stranger-originated life insurance (STOLI) is a type of insurance arrangement in which a person you don’t know very well (the “stranger”) can take out a policy on your life. This is generally illegal, as it is considered human life wagering. STOLI policies are often taken out by investors in business ventures to secure their financial future should a particular business partner die.
| Characteristics | Values |
|---|---|
| Name | Stranger-originated life insurance |
| Acronym | STOLI |
| Definition | A life insurance policy that's initiated without the presence of insurable interest between the policyholder and the insured |
| Legality | Illegal in some states |
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What You'll Learn
- Stranger-originated life insurance (STOLI) is any act, practice, or arrangement to initiate or facilitate the issuance of a life insurance policy for the intended benefit of a person who, at the time of policy origination, does not have an insurable interest in the life of the insured
- STOLI policies are illegal in some states
- Stranger-originated life insurance is a type of insurance arrangement in which a person you don’t know very well (the “stranger”) can take out a policy on your life
- In some cases, investors in business ventures will take out a STOLI policy in order to secure their financial future should a particular business partner die
- Stranger-originated life insurance practices include situations in which life insurance is purchased with resources or guarantees from or through a person or entity that, at the time of policy inception, could not lawfully initiate the policy
Stranger-originated life insurance (STOLI) is any act, practice, or arrangement to initiate or facilitate the issuance of a life insurance policy for the intended benefit of a person who, at the time of policy origination, does not have an insurable interest in the life of the insured
Stranger-originated life insurance (STOLI) is a type of insurance arrangement in which a person you don’t know very well (the “stranger”) can take out a policy on your life. This is generally any act, practice, or arrangement, at or prior to policy issuance, to initiate or facilitate the issuance of a life insurance policy for the intended benefit of a person who, at the time of policy origination, does not have an insurable interest in the life of the insured.
STOLI policies are often taken out by investors in business ventures to secure their financial future should a particular business partner die. However, STOLI is illegal in some states, as it is interpreted as human life wagering. For example, you cannot legally buy life insurance on your mother’s elderly neighbour when you have no stake in the neighbour’s continued longevity. In this scenario, you cannot legally gain from the neighbour’s passing.
STOLI practices include situations in which life insurance is purchased with resources or guarantees from or through a person or entity that, at the time of policy inception, could not lawfully initiate the policy themselves. This could be an arrangement or other agreement to transfer ownership of the policy or the policy benefits to another person. For example, a trust or similar arrangement that is used directly or indirectly for the purpose of purchasing one or more policies for the intended benefit of another person in a manner that violates the insurable interest laws of the state.
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STOLI policies are illegal in some states
Stranger-originated life insurance (STOLI) is a type of insurance arrangement in which a stranger takes out a policy on the life of someone they don't know very well. This is usually done as a speculative investment, with the purchaser receiving the death benefit when the insured individual passes away. STOLI policies are controversial and have been deemed unethical and illegal in some states.
In addition, it is illegal in many states to purchase a life insurance policy with the intent to sell it to a third party. This is because it violates the insurable interest doctrine and creates an unethical situation. If the policy owner has insurable interest in someone's life, they are more likely to care about that person living a long life rather than dying sooner for the death benefit. Without insurable interest, the policyholder has more interest in the insured dying as soon as possible.
STOLI arrangements were previously marketed to older individuals under the guise of "zero premium life insurance," "estate maximization plans," or "no cost to the insured plans." It is important for individuals to understand the risks associated with STOLI policies and to consult with an attorney for legal guidance. Insurance companies, regulators, and attorneys should also take steps to prevent the initiation and sale of STOLI policies to protect consumers.
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Stranger-originated life insurance is a type of insurance arrangement in which a person you don’t know very well (the “stranger”) can take out a policy on your life
Stranger-originated life insurance (STOLI) is a type of insurance arrangement in which a person you don't know very well (the "stranger") can take out a policy on your life. In other words, it is a life insurance policy that's initiated without the presence of insurable interest between the policyholder and the insured. This means that the person taking out the policy has no stake in the continued longevity of the insured person. For example, you cannot legally buy life insurance on your mother's elderly neighbour, as you have no risk of loss associated with the neighbour's death. However, you could buy life insurance on your spouse, who is the breadwinner of your household.
STOLI policies have been in the news lately, leading many senior citizens and life insurance policyholders to wonder what they are and why they are illegal in some states. STOLI is generally considered a violation of state law, which often interprets the practice as human life wagering. Stranger-originated life insurance practices include situations in which life insurance is purchased with resources or guarantees from a person or entity that, at the time of policy inception, could not lawfully initiate the policy themselves. There may also be an agreement to directly or indirectly transfer the ownership of the policy or the policy benefits to a person or entity that lacks an insurable interest.
In some cases, investors in business ventures will take out a STOLI policy to secure their financial future should a particular business partner die. However, it's important to note that STOLI practices are not always illegal. While they may be prohibited in some states, the legality of STOLI can vary depending on the specific laws and regulations in place. It's always essential to consult with a qualified legal professional to understand the legal implications of any insurance arrangement, including STOLI policies.
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In some cases, investors in business ventures will take out a STOLI policy in order to secure their financial future should a particular business partner die
Stranger-originated life insurance (STOLI) is a type of insurance arrangement in which a person you don’t know very well (the “stranger”) can take out a policy on your life. This is generally illegal, as it is considered human life wagering. However, in some cases, investors in business ventures will take out a STOLI policy in order to secure their financial future should a particular business partner die. This is because, in the event of the business partner's death, the investor would lose out financially. By taking out a STOLI policy, the investor can ensure that they are compensated for this loss.
STOLI policies are typically purchased with resources or guarantees from a person or entity that, at the time of policy initiation, could not lawfully initiate the policy themselves. This could involve an arrangement or agreement to transfer ownership of the policy or its benefits to another person or entity. For example, an investor might take out a STOLI policy on their business partner with the agreement that, in the event of their death, the policy benefits would be transferred to the business to ensure its continued operation.
It is important to note that STOLI practices are illegal in some states and may violate insurable interest laws. These laws are in place to prevent individuals or entities from profiting from the death of someone in which they have no insurable interest. As such, it is essential to understand the legal implications and risks associated with STOLI policies before considering such an arrangement.
Overall, while STOLI policies can provide financial security for investors in business ventures, they are controversial and may be subject to legal restrictions or prohibitions depending on the state or jurisdiction.
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Stranger-originated life insurance practices include situations in which life insurance is purchased with resources or guarantees from or through a person or entity that, at the time of policy inception, could not lawfully initiate the policy
Stranger-originated life insurance (STOLI) is a type of insurance arrangement in which a person you don't know very well (the "stranger") can take out a policy on your life. This is generally any act, practice, or arrangement, at or prior to policy issuance, to initiate or facilitate the issuance of a life insurance policy for the intended benefit of a person who, at the time of policy origination, does not have an insurable interest in the life of the insured under the laws of the applicable state. This includes the purchase of life insurance with resources or guarantees from or through a person that, at the time of policy initiation, could not lawfully initiate the policy.
STOLI policies are often taken out by investors in business ventures to secure their financial future should a particular business partner die. However, this is an illegal practice; state law often interprets STOLI as human life wagering. For example, you cannot legally buy life insurance on your mother's elderly neighbour when you have no stake in the neighbour's continued longevity. You face no negative consequences and have no risk of loss associated with the neighbour's death, so you cannot legally gain from the neighbour's passing. On the other hand, you could buy life insurance on your spouse who is the breadwinner of your household.
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Frequently asked questions
Stranger-initiated life insurance (STOLI) is a type of insurance arrangement in which a person you don’t know very well (the “stranger”) can take out a policy on your life.
In some cases, investors in business ventures will take out a STOLI policy in order to secure their financial future should a particular business partner die.
Stranger-initiated life insurance is illegal in some states. State law often interprets STOLI as human life wagering.
You cannot legally buy life insurance on your mom’s elderly neighbour when you have no stake in the neighbour’s continued longevity.
You could buy life insurance on your spouse who is the breadwinner of your household.
