A STOLI (stranger-originated life insurance) arrangement, in which a life policy is initiated for the benefit of an investor who has no insurable interest in the insured, is:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
STOLI, or stranger-originated life insurance, is an abusive arrangement in which coverage is obtained with the intention of transferring the policy to investors who lack an insurable interest in the insured. California's life settlement law, CIC Section 10113.1 et seq., and the insurance fraud statutes prohibit STOLI, and policies procured this way can be declared void. The practice can trigger penalties, license discipline, and fraud liability. Insurable interest is the foundation of a valid life insurance contract, and an investor with no insurable interest turns the policy into a wagering contract. Agents must never participate in STOLI arrangements, and any sign of such a scheme should be reported.
Why the other options are wrong
- The insured's written consent does not cure the absence of an insurable interest in the investor; consent cannot make a wagering contract lawful.
- Paying all of the premiums does not create an insurable interest; STOLI remains prohibited regardless of who funds the policy.
- A STOLI is a speculative investment in someone else's life, not a gift, and it is unlawful under California law.
Memory hook
STOLI = a stranger betting on your death. California says no: insurable interest is non-negotiable.