What is stranger initiated life insurance?

Answer 1

In recent years "STOLI" coverage has diminished greatly. Several years ago, someone previously unknown ("the stranger") to a potential insured initiated an application for coverage with an older applicant. Once covered, the insured is offered a sum of money to sell the policy never needed in the first place. Thus, leaving the death benefit to the now new owner of the policy who would then collect the death benefit once the senior had died.

Obviously, insurance companies took a very dim view of this practice, and various state have enacted laws preventing this type of transaction. In addition, may applications for coverage now ask questions of both the agent and the potential insured about the nature of the coverage and if money has or will change hands due to this proposed policy.