See: Life Insurance.
If someone asks if you're interested in buying a STOLI, you should not automatically assume they're pushing vodka. So not the same thing.
“STOLI” stands for “stranger-owned life insurance,” and if “stranger danger” is echoing in anyone’s ears right now, it should be. A STOLI is a life insurance policy that we buy and then turn around and instantly sell to someone that couldn’t legally buy it for themselves. STOLIs are illegal pretty much everywhere, and even in places where they’re not, they’re super-duper restricted and carefully scrutinized.
A STOLI works like this: a shady individual, or, more likely, a shady group of individuals, approaches someone (let’s call her Veronica) about life insurance. They want her to buy herself a nice life insurance policy. Then they’ll pay her one big ol’ lump sum in return for the policy. She gets money now, and then when she buys the farm, the folks who purchased her policy get the payout.
Not only does this sound like the beginning of one of those true crime murder documentaries where someone gets killed for their life insurance, it’s also considered financial fraud in, like, 99.9% of cases. Why? Because of insurable interest. When we insure something, it's because we care about it and would be negatively impacted by its loss. A random stranger, or group of strangers, doesn’t have an insurable interest in another random stranger’s life. Not to be crass, but they wouldn’t care if Veronica fell off a cliff tomorrow. They’re just interested in the payout, which means that, technically, Veronica’s worthless to them until she dies. And in the eyes of most state laws, that’s just not right. Life insurance is supposed to take care of the folks who will be bereft and need help after our death, not line the pockets of some morbid strangers in an office building somewhere.
Related or Semi-related Video
Finance: What is whole life insurance?6 Views
and finance Allah shmoop What is whole life insurance Well
if health insurance is a safety net for your health
then guess what life insurance is yet a safety net
for your life I e In case you die which
unless you found the fountain of youth or a genie
in a lamp well it's gonna happen sometime with life
insurance There's the owner of the policy who is from
usually also the insured You know the person whose death
makes it rain money The person who would get that
money is the beneficiary And of course there's the insurer
the life insurance company who takes your money every month
They're also the ones that cough up a lot of
cash when you eventually bite the dust Well whole life
insurance hole there with a W is a type of
permanent life insurance That kind of investment E It's permanent
because it follows you for life like an insurance of
Grim Reaper you know always lurking in the shadows You
know whole life insurance was born from its mother term
life insurance and back in the day when life insurance
was just getting it start in life while term life
insurance was the only option Like you'd pay fifty seven
bucks for a month's worth of a million dollar life
insurance policy in your twenties if you didn't die that
month Well congratulations But then the insurance company kept all
the money you just gave them and then it would
start all over again the following month For the insured
life insurance can feel kind of like a lose lose
situation If you live well you're making payments that go
into an abyss and if you die while you're dead
But at least your kid or mom or whoever the
beneficiary is has some money Well life insurance buyers got
tired of this term life insurance gamble every month losing
all the money they gave to the insurance companies So
they began Teo What's called Oh yeah think And then
using the power of frighteningly large groups will they began
to invest the money into markets with like a thirty
year time horizon No more giving over of all that
fifty seven bucks every month to the insurance company watching
all the money go down the drain As you might
imagine the life insurance company's weren't very fund of people
getting smart on them investing their money for insurance instead
of dropping it into well you know the insurance black
hole So they decided to cut a deal with those
wanting to be insured They said We'LL cover you for
three months instead of one If you fall off a
bridge or get hit by a bus while your wife
and kids will be seeing a cool million dollars and
then they said will invest half of your monthly premium
in an index fund Yes we'LL even let you choose
which index fund we put it into and the other
half Well we get to keep And if you want
to back out and terminate the plan not because you're
in a wooden box but because you ran out of
money or moving or something Well you can keep eighty
percent of what's left in that pot Well this whole
structure for the revolved into what we have today whole
life insurance which covers you not for one month or
three but for life Remember it's permanent You could still
cancel payment or future payments but it would cost you
a pretty penny Whole life insurance includes building up savings
from part of your premium payments not watching all your
premiums go into the insurance black hole Since whole life
insurance is permanent it acts as a no touchy investment
account And because it has high fixed payouts when you
die well it's super expensive In essence Ah whole life
insurance plan is a tricycle style a handhold the investment
vehicle that tries to pull a Miley Cyrus right getting
the best of both worlds For those with the cash
and discipline and the ability Teo stay alive that we
watch out for that bus You can replace the need
to even have a whole life insurance policy by simply
buying your own shares of an index fund or mutual
fund all on your own with no insurance company middleman
taking a cut then you own one hundred percent of
the investment and all that's left to do after then
is you know not die for a decade or three
Enjoy your loot
