Stranger-originated life insurance (STOLI) is life insurance which is taken out by a party other than the person who is covered by the life insurance policy who has no direct commercial interest (not a spouse, parent, business partner, for example) in the life of the person insured by the policy.
The third-party is the policyholder and holds the claim to the death benefit when the person insured by the policy dies. The insured person does not own the policy, does not pay premiums and does not receive a death benefit. They simply act as the insured object.
Stranger-originated life insurance is primarily used as a life settlement investment vehicle. In this process, STOLI policies are taken out by investors on the lives of other individuals. This usage of STOLI policies is controversial in that it allows investors to speculate on the deaths of insured individuals in who they do not have a living interest.
Typically, both the subject of the policy and the prospective policyholder must provide their consent in order for a STOLI policy to be taken out. In this case, the investor normally compensates the insured person with a commission in exchange for their permission to be used as the subject of the insurance policy. However, regulations vary between countries and regions. In some jurisdictions it is possible for third parties to take out insurance policies covering other individuals without their consent and without any form of compensation.
Swiss life insurance policies are not widely used as speculative instruments. The majority of life settlement products offered in Switzerland are based on life insurance policies issued in the United States of America.
More on this topic:
Guide to life settlement investments
Deal of the Day 
