If you are elderly, and in apparent good health, an insurance agent may offer you a sum of money if you will buy a policy of life insurance, which will be transferred to someone else when it is issued. In the insurance industry, this is called "STOLI", which stands for "stranger-owned life insurance." This is to be distinguished from "Stoli" which is a brand of vodka.
An insurance agent paid Lawrence Rucker $105,000 to apply for a policy of life insurance. The policy, for $3,500,000, was issued to the Lawrence Rucker 2007 Family Trust, which sold its assets to another trust controlled by an offshore limited liability company. The Rucker Family Trust would receive the death proceeds of the policy that would then be transferred to the other trust.
The insurance company sued to have the policy declared void, because the second trust -- the ultimate recipient of the death proceeds -lacked an insurable interest in Mr. Rucker. The U.S. District Court for Delaware determined that the insurance policy was void.
For many years it has been a principle of life insurance that, in order for a policy to be valid, the applicant should have an insurable interest in the insured. An insurable interest is an interest based upon a reasonable expectation of pecuniary advantage through the continued life, health, and bodily safety of another person, and, consequently, loss by reason of their death or disability, or a substantial interest engendered by love and affection if closely related by blood or by law.
If the purchaser of a policy does not have an insurable interest in' the insured when the policy is issued, the policy is considered to be a wagering contract, and illegal in many states. As a matter of social policy, it is considered unwise to permit the purchase of a wagering contract on someone's life. Among other things, the owner might be tempted to accelerate the date of the insured's death.
I believe that eventually legislation in most states will invalidate such policies. If you are offered money to apply for a life insurance policy, have in mind that you might wind up as a party in a lawsuit.
