What does STOLI stand for in the insurance industry?

STOLI stands for Stranger-Originated Life Insurance, which refers to a particularly controversial practice where investors (strangers) take out life insurance policies on individuals, often with the goal of profiting from the death benefit. The practice has raised significant ethical and legal concerns, as it can lead to situations where the insured individual may not have a genuine insurable interest, thus undermining the basic principles of life insurance.

When STOLI arrangements are enacted, the policyholder typically receives a significant portion of the policy's value upfront, hence incentivizing decisions that may not align with the best interests of the individual whose life is being insured. This can lead to adverse consequences, not only for the parties involved but also for the integrity of the life insurance market.

The other options do not accurately define STOLI. Standard term of life insurance denotes a commonly understood policy type but does not cover the essence of STOLI. Short-term overlapped life insurance and structured insurance underwriting life insurance are non-existent terms in the context of life insurance practices. Understanding STOLI is crucial for comprehending potential risks and regulatory concerns associated with life insurance investments.