Under the New York Insurance Law, 'stranger-originated life insurance' is best described as:
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Under N.Y. Ins. Law §7815, stranger-originated life insurance means any act, practice or arrangement, at or prior to policy issuance, to initiate or facilitate the issuance of a policy for the intended benefit of a person who, at the time of policy origination, has no insurable interest in the life of the insured under New York law. The definition expressly reaches purchases financed or guaranteed by someone who could not lawfully initiate the policy, agreements to transfer ownership or policy benefits, and trusts used to buy policies for another person's benefit in violation of the insurable interest laws.
Why the other options are wrong
- A) The later sale of an existing policy through the licensed settlement market is a life settlement, not stranger-originated life insurance; STOLI turns on the policy's origination.
- B) Employer group life insurance rests on the employer's insurable interest in its employees and is not stranger-originated.
- D) A business has a lawful and substantial economic interest in the continued life of a key employee, so key-person coverage is not STOLI.
Memory hook
STOLI is born for a stranger — no insurable interest at policy origination.