General Insurance PrinciplesQuestion 577 of 716
A stranger-originated life insurance (STOLI) arrangement is prohibited primarily because:
a.It tends to lower premiums for other policyholders
b.The initial investors or owners have no insurable interest in the insured
c.It pays claims more quickly than ordinary policies
d.It is essentially a disguised form of group insurance that avoids the usual individual underwriting requirements
Explanation
STOLI is banned because outside investors who arrange coverage on a stranger's life lack insurable interest, turning life insurance into a wager on someone's death. It has nothing to do with lowering premiums, faster claims, or group coverage.
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Related questions on this topic
- Offering a prospective buyer part of the commission or another inducement not specified in the policy in order to make a sale is called:
- A producer who collects and holds premium money on behalf of the insurer occupies a position described as:
- The principle of indemnity, which limits recovery to the actual amount of a loss, generally does NOT apply to life insurance because a life policy is:
- Which relationship most clearly satisfies insurable interest for a life insurance policy?
- Insurers combat adverse selection primarily through:
- The producer's role in field underwriting includes:
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)