Alyssa Lane
Stranger-Originated Life Insurance (STOLI) is a controversial life insurance policy where a stranger, with no insurable interest in the life of the insured, purchases a life insurance policy on someone else's life. The stranger then pays the premiums and sells the policy to a third party who is interested in investing in the policy. The stranger makes a profit, and the third party receives the death benefit when the insured passes away. STOLI arrangements are broadly illegal, and many schemes include fraudulent financial reporting.
| Characteristics | Values |
|---|---|
| Type of policy | A stranger, who has no insurable interest in the life of the insured, initiates and purchases a life insurance policy on someone else’s life |
| Who it benefits | The stranger, who makes a profit, and the third party who receives the death benefit |
| Legality | Broadly illegal; a violation of section 20-1104 |
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What You'll Learn
- Stranger-owned life insurance (STOLI) is a controversial policy where a stranger purchases a life insurance policy on someone else's life
- The stranger pays the premiums and sells the policy to a third party who receives the death benefit
- STOLI is illegal because it bypasses the insurable-interest requirement of purchasing life insurance
- STOLI arrangements often include fraudulent financial reporting
- STOLI is promoted to consumers between the ages of 65 and 85
Stranger-owned life insurance (STOLI) is a controversial policy where a stranger purchases a life insurance policy on someone else's life
Stranger-owned life insurance (STOLI), also known as investor-owned life insurance (IOLI) or stranger-originated life insurance, is a controversial policy where a stranger purchases a life insurance policy on someone else's life. It tries to bypass the insurable-interest requirement of purchasing life insurance. In other words, it's buying life insurance on somebody whose death would not create a loss for the buyer.
STOLI arrangements are illegal and often include fraudulent financial reporting. For example, a senior citizen may use falsely exaggerated financial numbers to purchase a large life insurance policy. In exchange, a third-party investor agrees to cover the premiums. Eventually, the senior citizen purchaser sells the policy to the investor for a cash payment. The insured gets "free" money.
The main characteristic of STOLI arrangements is that insurance is purchased purely as an investment vehicle by a group of strangers, not to provide for the insured's beneficiaries. Some call them "zero premium life insurance" or "no cost to the insured plans". STOLI arrangements are typically promoted to consumers between the ages of 65 and 85.
In 2016, a federal judge found an individual named Daniel E. Carpenter guilty of conspiracy, mail fraud, wire fraud, and money laundering for his role in a STOLI scam. Carpenter and another man fraudulently applied for and obtained life insurance policies on seniors, with the goal of collecting the death benefits later.
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The stranger pays the premiums and sells the policy to a third party who receives the death benefit
Stranger-Originated Life Insurance (STOLI) is a controversial life insurance policy that has been gaining attention in recent years. It is a type of policy where a stranger, someone who has no insurable interest in the life of the insured, initiates and purchases a life insurance policy on someone else’s life. The idea behind STOLI is that the stranger purchases the policy, pays the premiums, and then sells the policy to a third party who is interested in investing in the policy. In this scenario, the stranger makes a profit, and the third party receives the death benefit when the insured passes away.
STOLI arrangements are broadly illegal, and many schemes include fraudulent financial reporting. For example, a senior citizen uses falsely exaggerated financial numbers to purchase an extremely large life insurance policy. In exchange, a third-party investor agrees to cover the premiums. Eventually, the senior citizen purchaser sells the policy to the investor for a cash payment. The insured gets “free” money.
STOLI arrangements are typically promoted to consumers between the ages of 65 and 85. Some call them "zero premium life insurance," "estate maximization plans," or "no cost to the insured plans," while others refer to "new issue life settlements," "high net worth settlements," or "non-recourse premium finance transactions."
Entering into a contract for "free" or "no-cost" insurance on your life is a violation of section 20-1104. 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 himself or itself.
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STOLI is illegal because it bypasses the insurable-interest requirement of purchasing life insurance
Stranger-Originated Life Insurance (STOLI) is a controversial policy where a stranger, who has no insurable interest in the life of the insured, purchases a life insurance policy on someone else’s life. The stranger then pays the premiums and sells the policy to a third party who is interested in investing in the policy. The stranger makes a profit, and the third party receives the death benefit when the insured passes away.
STOLI 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. If, at the time of policy inception, there is 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, this is a violation of the law.
Many STOLI schemes also include fraudulent financial reporting. For example, a senior citizen may use falsely exaggerated financial numbers to purchase a large life insurance policy. In exchange, a third-party investor agrees to cover the premiums, and the senior citizen purchaser sells the policy to the investor for a cash payment. The insured gets "free" money. In 2016, a federal judge found an individual named Daniel E. Carpenter guilty on charges including conspiracy, mail fraud, wire fraud, and money laundering for his role in a STOLI scam.
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STOLI arrangements often include fraudulent financial reporting
Stranger-Originated Life Insurance (STOLI) is a controversial life insurance policy that has been gaining attention in recent years. It is a type of policy where a stranger, someone who has no insurable interest in the life of the insured, initiates and purchases a life insurance policy on someone else’s life. The idea behind STOLI is that the stranger purchases the policy, pays the premiums, and then sells the policy to a third party who is interested in investing in the policy. In this scenario, the stranger makes a profit, and the third party receives the death benefit when the insured passes away.
STOLI arrangements are broadly illegal, and many schemes include fraudulent financial reporting. For example, a senior citizen may use falsely exaggerated financial numbers to purchase an extremely large life insurance policy. In exchange, a third-party investor agrees to cover the premiums. Eventually, the senior citizen purchaser sells the policy to the investor for a cash payment. The insured gets "free" money.
STOLI arrangements are typically promoted to consumers between the ages of 65 and 85. They include allowing someone to purchase life insurance on your life in exchange for an immediate lump sum payment of some amount; allowing someone to purchase insurance on your life in exchange for a partial payment of the policy's face value to your beneficiaries upon your death; entering into a contract for "free" or "no-cost" insurance on your life; or purchasing a life insurance policy for the sole purpose of selling the policy to a third party.
In 2016, a federal judge found an individual named Daniel E. Carpenter guilty on charges including conspiracy, mail fraud, wire fraud, and money laundering for his individual role in a STOLI scam. Carpenter and another man fraudulently applied for and obtained life insurance policies on seniors, with the goal of collecting the death benefits later. As the verdict explains, “A STOLI policy differs from a regular policy in that it is not obtained for estate planning purposes but for transfer to an investor with no insurable interest in the life of the insured.”
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STOLI is promoted to consumers between the ages of 65 and 85
Stranger-Originated Life Insurance (STOLI) is a controversial life insurance policy that has been gaining attention in recent years. It is a type of policy where a stranger, someone who has no insurable interest in the life of the insured, initiates and purchases a life insurance policy on someone else’s life. The idea behind STOLI is that the stranger purchases the policy, pays the premiums, and then sells the policy to a third party who is interested in investing in the policy. In this scenario, the stranger makes a profit, and the third party receives the death benefit when the insured passes away. STOLI arrangements are broadly illegal, and many schemes include fraudulent financial reporting. For example, a senior citizen uses falsely exaggerated financial numbers to purchase an extremely large life insurance policy. In exchange, a third-party investor agrees to cover the premiums. Eventually, the senior citizen purchaser sells the policy to the investor for a cash payment. The insured gets “free” money.
- Allowing someone to purchase life insurance on your life in exchange for an immediate lump sum payment of some amount
- Allowing someone to purchase insurance on your life in exchange for a partial payment of the policy's face value to your beneficiaries upon your death
- Entering into a contract for "free" or "no-cost" insurance on your life
- Purchasing a life insurance policy for the sole purpose of selling the policy to a third party
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Frequently asked questions
Stranger-originated life insurance (STOLI) is a type of life insurance policy where a stranger, someone who has no insurable interest in the life of the insured, initiates and purchases a life insurance policy on someone else’s life.
The idea behind STOLI is that the stranger purchases the policy, pays the premiums, and then sells the policy to a third party who is interested in investing in the policy. The stranger makes a profit, and the third party receives the death benefit when the insured passes away.
No, STOLI is not legal. The legality of STOLI hinges on the presence of insurable interest at the policy's origination. Intentionally practicing or planning to initiate a life insurance policy for the benefit of a person or entity that lacks an insurable interest is a violation of section 20-1104.
STOLI arrangements are typically promoted to consumers between the ages of 65 and 85.
One example of a STOLI scheme is where a senior citizen uses falsely exaggerated financial numbers to purchase an extremely large life insurance policy. In exchange, a third-party investor agrees to cover the premiums. Eventually, the senior citizen purchaser sells the policy to the investor for a cash payment.
