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Stranger Originated Life Insurance STOLI

What is Stranger-Originated Life Insurance?

Stranger-Originated Life Insurance (also known as Stranger-Owned Life Insurance or "STOLI") arrangements, are NOTtraditional life insurance policies. Traditionally, the consumer (i.e., the insured) initiates the application for insurance and the insured's loved ones are beneficiaries of the death benefits. In a STOLI arrangement, an investor group—strangers—initiate the insured's application and will likely acquire an interest in the life (and possibly profit from the death) of a participant. 

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. 

Descriptions of STOLI arrangements vary. 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." 

  • STOLI arrangements are typically promoted to consumers between the ages of 65 and 85 and 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, whether immediately or in the future.

Are Stranger-Originated Life Insurance Arrangements Prohibited?

Yes. Effective July 1, 2010, the Act expressly prohibits any person from entering into a STOLI arrangement as defined by the Act.