Life Insurance
Stranger-Originated Life Insurance (STOLI)
Stranger-originated life insurance (STOLI) is an arrangement—generally illegal or unenforceable—in which an investor or third party who has no insurable interest arranges for life insurance to be issued on another person's life, with the intent to profit from that person's death through a pre-planned policy sale.
Last reviewed: May 2026 · Editorial methodology
Definition
Stranger-originated life insurance describes schemes in which investors induce individuals—often seniors—to apply for life insurance with the understanding that the investor will finance the premiums for two years and then purchase the policy in a life settlement transaction, circumventing the insurable interest requirement. All 50 U.S. states require that a life insurance policy be taken out with a genuine insurable interest—the owner must have a financial stake in the insured's continued life—and STOLI arrangements are designed to manufacture a temporary facade of insurable interest to obtain policies for investor speculation on human mortality. Courts in many states have voided STOLI policies and returned premiums to carriers, finding them void ab initio as wagering contracts against public policy under state insurable interest laws. The NAIC's Life Settlements Model Act and state laws specifically prohibit agreements entered at or before policy issue that require a subsequent assignment to a person lacking insurable interest. Legitimate life settlements—where a policyholder chooses to sell an unwanted existing policy years after it was genuinely purchased—are legal, regulated transactions distinct from STOLI. Agents and brokers who participate in STOLI arrangements risk license revocation, criminal prosecution, and civil liability.
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Cover Forge USA Editorial Team
Editorial Lead
This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.
Reviewed 2026-06-14
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