What characterizes Stranger Originated Life Insurance (STOLI)?

Stranger Originated Life Insurance (STOLI) is characterized by the fact that it involves individuals who do not have an insurable interest in the life of the insured but still stand to benefit from the insurance policy. This means that the policyholder may take out a life insurance policy on someone else's life, often for the purpose of profiting from the death benefit when the insured passes away. This practice is distinct because it circumvents the traditional principle of insurable interest, which requires the policyholder to have a legitimate interest in the continued life of the insured.

While the other options touch on different aspects of life insurance, they do not correctly describe STOLI. For example, requiring a direct familial connection contradicts the definition of STOLI since it is often used by individuals who are strangers to the insured. Higher death benefits for immediate family members is unrelated to the core concept of STOLI, which is about non-related parties profiting from life insurance. Limiting ownership transfer for a specified period is also not a defining feature of STOLI; this aspect pertains more to regulations or policy terms rather than the fundamental nature of STOLI itself. Understanding these distinctions helps clarify the controversial nature of STOLI and its implications within the