Glossary

STOLI

A scheme in which investors with no insurable interest induce someone to buy life insurance so they can acquire the policy and profit from the death.

Also called: stranger-originated life insurance, stranger-owned life insurance, investor-owned life insurance

STOLI (stranger-originated life insurance) describes a policy taken out from the start for the benefit of investors who have no insurable interest in the insured's life. Typically, promoters approach older people, often with high net worth, offer free insurance, cash or a "no-cost" premium loan, and arrange for the policy, or the trust that owns it, to be transferred to investors once the contestability period ends.

It differs from a legitimate life settlement, in which an owner who bought a policy for genuine reasons later decides to sell it. In STOLI, the plan to transfer exists at the application, which effectively evades insurable interest laws. Many states have responded: settlements are commonly restricted during the first two to five years after issue except in specified hardship cases, and many states define STOLI as a fraudulent act. Applications now ask about premium financing and any intent to sell. Hypothetically, a 75-year-old offered $50,000 to apply for a $5 million policy he'll never pay for is being recruited into STOLI.

Risks for the insured include a rescinded policy, lawsuits, a tax bill on payments received, and used-up insurability if they later need coverage of their own. See Stranger-originated life insurance (STOLI): what it is and why it is restricted and insurable interest: who can buy life insurance on whom.

Last reviewed October 4, 2026

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Related terms

Viatical and life settlement providers Licensed companies that buy life insurance policies from their owners for a lump sum, then pay the premiums and collect the death benefit later. Incontestability clause A provision that bars the insurer from voiding coverage over application misstatements once it has been in force for two years during the insured's life. Life insurance application The form a prospective buyer completes with personal, financial and health details that the insurer uses to underwrite and price coverage. Assignment A written transfer of some or all rights in a life insurance policy to another person or entity, either permanently or as collateral for a loan. Beneficiary The person, trust, charity or estate named to receive a life insurance death benefit or an annuity's remaining value when the insured or owner dies.

Related guides

Insurable interest: who can buy life insurance on whom Insurable interest is the family or financial tie that lets you insure someone else's life. Who qualifies, when it must exist, and the consent rule. Life insurance fraud: what it is and how it's caught The main kinds of life insurance fraud, how insurers and regulators detect them, what the penalties are, and how an honest mistake differs from fraud. Life settlements: selling your life insurance policy How selling a life insurance policy works, who regulates it, what rescission rights and disclosures to expect, and how the sale is taxed after Rev. Rul. 2020-5. Stranger-originated life insurance (STOLI): what it is and why it is restricted How stranger-originated life insurance works, why courts and regulators treat it as lacking insurable interest, and what the NAIC and NCOIL waiting periods say.