Investopedia explains 'Stranger-Owned Life Insurance - STOLI'
There are a couple of ways investors attempt to profit from stranger-owned life insurance. In most instances, the investors can wait for the insured to die and simply collect the payout. Or, if the group of investors is large enough and they have invested in several life insurance contracts, these can be bundled and traded or sold to other investors who are looking to invest in similar investments.
Insurance companies argue that such policies are manufactured and overstate insurable interest at best. Many of the more obvious STOLI loopholes have been closed and insurers themselves are becoming more vigilant.
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