STOLI, short for stranger-originated life insurance, refers to arrangements in which a third party with no insurable interest in the insured induces or facilitates the purchase of a life insurance policy primarily for speculative investment rather than legitimate protection needs. Typically, investors provide funds for premiums and plan to acquire the policy or its benefits after a contestability period, often circumventing insurable interest and anti-wagering laws. STOLI schemes can involve misrepresentation on applications, premium financing structures, and complex trusts. Regulators and carriers view STOLI as abusive and contrary to the public policy underlying life insurance, leading to legislation, litigation, and strict underwriting scrutiny to prevent such transactions.

Advisors must recognize and avoid STOLI-related activity, including offers from investors to pay premiums, encouraging seniors to take out large policies they do not need, or arrangements that contemplate early resale to strangers. Carriers have tightened application questions and producer certifications to detect potential STOLI, and some states have enacted specific anti-STOLI statutes. Advisors focus instead on legitimate life settlements and policy reviews where genuine coverage needs have changed. Understanding STOLI helps advisors protect clients from questionable schemes, safeguard their own licenses, and maintain carrier relationships by adhering to insurable interest and anti-wagering principles.