Stranger-Owned and Stranger-Originated Life Insurance (STOLI)

Summary

This practice note discusses stranger-owned life insurance and stranger-originated life insurance. Both are referred to as STOLI. There are several other transactions that are similar to it, namely, investor-owned life insurance (IOLI) and company-owned life insurance (COLI), but the focus of this practice note is on STOLI. Topics detailed include the history of insurable interest, life settlements, viatical settlements, as well as STOLI potential dangers, defenses, and practice tips. Whether STOLI is considered a product or a transaction, it involves the same type of process and the same kind of insurance product—life insurance. It triggers controversy between and among insurance regulators and the parties affected by the transaction stemming from what is seen as a breach of a main tenet of all insurance—insurable interest.