Stranger-Owned Life Insurance - STOLI

See: Life Insurance.

If someone asks if you're interested in buying a STOLI, you should not automatically assume they're pushing vodka. So not the same thing.

“STOLI” stands for “stranger-owned life insurance,” and if “stranger danger” is echoing in anyone’s ears right now, it should be. A STOLI is a life insurance policy that we buy and then turn around and instantly sell to someone that couldn’t legally buy it for themselves. STOLIs are illegal pretty much everywhere, and even in places where they’re not, they’re super-duper restricted and carefully scrutinized.

A STOLI works like this: a shady individual, or, more likely, a shady group of individuals, approaches someone (let’s call her Veronica) about life insurance. They want her to buy herself a nice life insurance policy. Then they’ll pay her one big ol’ lump sum in return for the policy. She gets money now, and then when she buys the farm, the folks who purchased her policy get the payout.

Not only does this sound like the beginning of one of those true crime murder documentaries where someone gets killed for their life insurance, it’s also considered financial fraud in, like, 99.9% of cases. Why? Because of insurable interest. When we insure something, it's because we care about it and would be negatively impacted by its loss. A random stranger, or group of strangers, doesn’t have an insurable interest in another random stranger’s life. Not to be crass, but they wouldn’t care if Veronica fell off a cliff tomorrow. They’re just interested in the payout, which means that, technically, Veronica’s worthless to them until she dies. And in the eyes of most state laws, that’s just not right. Life insurance is supposed to take care of the folks who will be bereft and need help after our death, not line the pockets of some morbid strangers in an office building somewhere.