Stranger-Originated Life Insurance ("STOLI")
STOLI is 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 an arrangement or other agreement to transfer the ownership of the policy or the policy benefits to another person. The main characteristic of a STOLI arrangement is that insurance is purchased as an investment vehicle, rather than to provide for the insured's beneficiaries. STOLI arrangements also may be called "zero premium life insurance", "no cost to the insured plans", "new issue life settlements", "high net worth settlements", or "non-recourse premium finance transactions".
Insurers may refuse to make payments on STOLI arrangements. Such arrangements circumvent the insurable interest requirement and are illegal in most states. Such an arrangement also may constitute insurance fraud.
Read more about this topic: Life Settlement
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