Stranger-originated life insurance

"STOLI" redirects here. For the vodka, see Stolichnaya.

Stranger-originated life insurance ("STOLI") generally means 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.[1] 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; an arrangement or other agreement to transfer ownership of the policy or the policy benefits to another person; or 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.[1] The main characteristic of a STOLI transaction is that the insurance is purchased solely as an investment vehicle, rather than for the benefit of the policy owner's beneficiaries.[2] STOLI arrangements are typically promoted to consumers between the age of 65 and 85.[2]

A STOLI transaction may require the cooperation of the insured, by, for example, allowing access to the insured's medical records. The policy owner also may be paid a fee for taking out the policy.[3][4]

Descriptions of STOLI arrangements may vary. They may be called "zero premium life insurance", "estate maximization plans", "no cost to the insured plans", "new issue life settlements", "high-net-worth settlements", "non recourse premium finance transactions" or "death bets".[5][2] A similar arrangement is known as spin-life.[6][7]

  1. ^ a b See, e.g., New York Insurance Law section 7815
  2. ^ a b c Consumer Alert: Stranger-Originated Life Insurance, Insurance Division, Illinois Department of Financial and Professional Regulation, January 2008, retrieved on March 9, 2012, at http://www.idfpr.com/Forms/Memo/STOLIConsumerAlert.pdf
  3. ^ "Life Companies, Agents, Brokers Strongly Support NAIC Panel Vote on Stranger-Originated Life Insurance". insurancenewsnet.com. 2006-12-11. Archived from the original on 2013-01-26.
  4. ^ "Investors Could Profit From Strangers' Deaths: Legislative Hearing Planned This Month". KCRA 3. 2008-02-01.
  5. ^ Judge Allows 'Death Bet' Case, Leslie Scism and Mark Maremont, The Wall Street Journal, 2010 10 5
  6. ^ "How Spin-Life Works". The New York Times. 2006-12-17.
  7. ^ Duhigg, Charles (2006-12-17). "Late in Life, Finding a Bonanza in Life Insurance". The New York Times.