Life Settlements, STOLI Pose Potential Insurable Interest Problems

     Virtually every jurisdiction in the United States recognizes a person’s right to insure his or her own life and name another as the policy beneficiary, either through an assignment or express designation. The designated beneficiary or assignee is thereafter deemed to have an insurable interest in the insured person’s life by virtue of that designation or assignment. 

     In the context of life or viatical settlements, the requirement of an insurable interest is typically satisfied when the insured person assigns the policy to the purchaser. The insured person in a “stranger owned life insurance” or “STOLI” transaction may likewise satisfy the insurable interest requirement through designation or assignment. Thus, it is arguable that the beneficiary in both life settlement and STOLI transactions have an insurable interest in the insured person’s life because of the assignment—an act taken by the insured person himself.

     One matter absent from the current debate over life settlement and STOLI transactions, however, involves the maintenance of an insurable interest after a secondary transfer of the policy. Most contracts may be transferred time and time again. But life insurance policies are not like most contracts because the requirement of an insurable interest is a fundamental. It is therefore likely that the second (or third, or fourth) assignee of the life insurance contract will not have an insurable interest in the insured person’s life—the insured person did not assign the policy to the subsequent owner or name it as the policy beneficiary. And in many jurisdictions, the absence of an insurable interest renders the policy void as a wagering contract that violates public policy.


     To learn more about this topic, please contact any of the firm's partners at

Trackbacks (0) Links to blogs that reference this article Trackback URL
Comments (3) Read through and enter the discussion with the form at the end
rohit masurkar - April 18, 2009 1:02 AM

may i know more on the topic of insurable interest while assingment of policies

Money & Finance - June 22, 2009 8:20 AM

Everytime doing further research on life settlements I find out more new stuff that is very important to consider before making the transaction. Thank you for adding on to that base of knowledge and enriching it with your neutral and useful information!

NINNO - June 29, 2009 8:10 AM

Viaticals? It will always be a risky business. Just ask Mutual Benefits corp. There's no guarantee that the insured will ever pass away. Life expectancy is just that, and expectancy. I know an aids patient who was given a life expectancy of 24 months in 1996. It is 2009 and the patient is still alive. Whoever is paying the premiums on the policy is losing. Life inside Mutual Benefits

Post A Comment / Question Use this form to add a comment to this entry.

Remember personal info?