Stranger-originated life insurance (STOLI) is typically:

Stranger-originated life insurance (STOLI) refers to a practice in which a third party initiates a life insurance policy on an individual with the intention of profiting from the policy's eventual payout, primarily through resale or other means, rather than to provide financial protection for that individual’s beneficiaries. This practice is problematic because it generally does not reflect the necessary insurable interest that should exist in a traditional life insurance arrangement.

Insurable interest is a fundamental principle in life insurance which requires the policy owner to have a legitimate interest in the continued life of the insured. In a typical scenario, this means that close relatives or business partners can take out policies that would benefit them financially from the insured's lifespan. STOLI undermines this principle as the policy owner is often a stranger to the insured, raising ethical and legal concerns regarding moral hazard.

Due to these issues, the majority of states have classified STOLI as prohibited because it circumvents the basic tenets of insurable interest. This serves to maintain the integrity of the life insurance market and protect consumers from potentially exploitative practices. Consequently, regulatory bodies closely monitor and restrict such activities, reinforcing the stance that STOLI lacks the appropriate insurable interest intent required for a legitimate life insurance