Stranger-Originated Life Insurance (STOLI)

Stranger-Originated Life Insurance (STOLI)

A life insurance arrangement where investors convince individuals, typically seniors, to take out new life insurance policies with the investors named as beneficiaries to bypass state insurable interest laws.

Contestability Period

A period, usually two years, during which an insurance company can challenge the validity of a policy and deny a claim based on misrepresentation or concealment by the insured.

Loan

A sum of money borrowed by the insured from the investors, which is used to pay the premiums for a defined period.

Regulators

Government entities responsible for overseeing and enforcing laws and regulations related to insurance.

Insurable Interest Statutes

Laws that require the policyholder to have a financial or emotional interest in the life or property of the insured in order to purchase an insurance policy.

Invalidation of the Policy

The act of declaring an insurance policy null and void, usually due to a violation of policy terms or conditions.

Banning STOLI Transactions

The action taken by states to prohibit Stranger-Originated Life Insurance (STOLI) arrangements due to their inconsistency with the intended purpose of insurable interest.

Premium

The amount of money an insured person pays to an insurance company in exchange for insurance coverage.

Death Benefit

The amount of money paid to the beneficiary upon the death of the insured person.

Insurable Interest

The financial or emotional interest an individual has in the life or property of another person, which must exist at the start of the insurance policy.

Premium Payments

The payments made by the insured or the investors to the insurance company to keep the policy in force.

Insured

The person whose life or property is covered by an insurance policy.

Inception of the Policy

The start or beginning of an insurance policy, when coverage becomes effective.