Connecticut Life Producer Practice exam

What does STOLI stand for in life insurance?

1. Standard Life Insurance Policy

2. Stranger-Originated Life Insurance

3. Short-Term Life Insurance Option

4. Supplemental Term Life Insurance

The correct answer is: Stranger-Originated Life Insurance

STOLI stands for Stranger-Originated Life Insurance. This concept refers to insurance policies taken out by investors or third parties on the lives of individuals who may not have a substantial insurable interest in those lives. In a STOLI arrangement, the policyholder usually has no connection to the insured other than the financial interest in the payout when the insured passes away. The practice aims to capitalize on the death benefits of life insurance instead of being used purely for protecting the insured's dependents or for estate planning. Thus, STOLI raises various regulatory and ethical questions, as it can be viewed as a way to profit from someone's death, which diverges from the traditional purpose of life insurance. Understanding this term is crucial for life insurance producers, as they need to recognize the implications and legality of such policies, particularly in the context of their clients and potential regulatory scrutiny. The other terms mentioned in the options refer to different types of life insurance products or policy features that do not encompass the distinctive nature of STOLI.