For whom does an insured benefit from a life insurance policy in a STOLI agreement?

In a STOLI (Stranger-Originated Life Insurance) agreement, the insured benefits from a life insurance policy in a way that often involves a person who does not have an insurable interest in the insured individual. This means that the party who takes out the insurance policy is typically a stranger to the insured, intending to profit from the policy at the insured's death. The essence of a STOLI arrangement is that the agreement is made with someone who has no personal stake, emotional, or financial connection to the insured, which is contrary to traditional life insurance principles that require insurable interest.

The concept of insurable interest is fundamental to standard life insurance arrangements because it underscores that the policyholder must stand to suffer a loss from the insured's death. Options that involve individuals like a spouse, domestic partner, parent, or guardian all imply a pre-existing bond or financial connection that supports the notion of insurable interest. In contrast, the STOLI arrangement circumvents these traditional relationships, positioning a party without insurable interest as the beneficiary of the policy. This dynamic is what makes STOLI agreements controversial and often subject to regulation or legal scrutiny.