What are stranger originated life insurance policies and what are the legal issues with respect to them?
Stranger originated life insurance (STOLI) policies are life insurance policies that are purchased with the intent of immediately transferring ownership and beneficiary rights to an investor who has no insurable interest in the life of the insured. The investor pays the premiums and becomes the beneficiary of the policy when the insured dies, receiving the death benefit proceeds.
STOLI policies are controversial because they involve the purchase of a life insurance policy for the sole purpose of profiting from the death of another person. Some view them as a form of gambling on someone else's life and believe they go against the fundamental purpose of life insurance, which is to provide financial protection to family members or other individuals who have a personal or business relationship with the insured.
In addition to ethical concerns, there are legal issues associated with STOLI policies. The legality of STOLI policies varies by state, but many states have enacted laws to restrict or prohibit them. These laws are intended to prevent individuals from taking out life insurance policies on strangers and profiting from their deaths, as well as to prevent insurance fraud.
One legal issue with STOLI policies is that they may violate the insurable interest doctrine. The insurable interest doctrine requires that the policy owner have an insurable interest in the life of the insured. In other words, the policy owner must have a financial or other relationship with the insured that would be adversely affected by the insured's death. STOLI policies typically involve an investor who has no such relationship with the insured, and therefore, may be considered invalid or unenforceable.
Another legal issue is that STOLI policies may be considered illegal under state laws that prohibit wagering or gambling on human life. These laws are intended to prevent individuals from profiting from the death of another person.
In summary, STOLI policies involve purchasing life insurance policies for the sole purpose of profiting from the death of another person, and are subject to ethical and legal concerns. The legality of STOLI policies varies by state, but many states have enacted laws to restrict or prohibit them, due to concerns over the insurable interest doctrine and gambling on human life.
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