Which statement about STOLI is true?

Which statement about STOLI is true?

• A. It is formed after policy issue.
• B. The policy involves insurable interest at issue.
• C. It is formed when the insured dies.
• D. It is initiated at or before issuance and involves no insurable interest.

Answer: (D)

STOLI involves starting the policy before it is issued and arranging it so the purchaser has no insurable interest in the insured. The key idea is that a third party with no stake in the insured’s life initiates the coverage to profit from the death, which means there is no insurable interest at the time of issue. Standard life insurance requires insurable interest at issue, so STOLI tries to bypass that rule by setting up the policy in advance and then benefiting from the death. That’s why the correct statement is that it is initiated at or before issuance and involves no insurable interest. The other descriptions don’t fit STOLI’s pattern: forming after issue would miss the pre-issuance setup, forming at death isn’t how STOLI is created, and claiming insurable interest at issue contradicts the basic structure of STOLI.

STOLI involves starting the policy before it is issued and arranging it so the purchaser has no insurable interest in the insured. The key idea is that a third party with no stake in the insured’s life initiates the coverage to profit from the death, which means there is no insurable interest at the time of issue. Standard life insurance requires insurable interest at issue, so STOLI tries to bypass that rule by setting up the policy in advance and then benefiting from the death. That’s why the correct statement is that it is initiated at or before issuance and involves no insurable interest. The other descriptions don’t fit STOLI’s pattern: forming after issue would miss the pre-issuance setup, forming at death isn’t how STOLI is created, and claiming insurable interest at issue contradicts the basic structure of STOLI.