A stranger-originated life insurance (STOLI) is a life insurance arrangement, in which a stranger initiates an insurance policy against someone's life and makes the premium payments. The stranger may do this as investment for himself or on behalf of an investor, or at his own risk for the purpose of reselling the policy to an investor. The STOLI may require the cooperation of the insured, for example for allowing access to medical records; the insured may get a fee for this.[1][2]
A similar arrangement is known as Spin-Life.[3][4]
In the United States, regulation of life insurance is left to the individual states. In general, the law requires that the owner of a policy have an "insurable interest" in the insured (i.e. the beneficiary must in some way be financially dependent on the insured). This makes SOLI policies, in effect, illegal.[5]
The trafficking of life insurance products is illegal in many Canadian provinces (the anti-trafficking provision was never enacted in Saskatchewan, New Brunswick, and Nova Scotia, while Quebec repealed it in 1974). [6] At least one large Canadian insurer warns agents not to sell policies if the intent of the policyholder is to sell or immediately assign the policy to an unrelated third party with a non-insurable interest (other than a bank, used as collateral for a loan). [7]
The Financial Services Authority in the United Kingdom has warned its regulated firms against selling or marketing traded U.S. life insurance policies investments (TPLIs) as they are "high risk, toxic products", calling them highly problematic and advised UK investment firms to steer clear of them. [8]