Stranger originated life insurance violates which of the following statutory requirements?

Stranger-originated life insurance (STOLI) arrangements violate the fundamental legal requirement of insurable interest . In life insurance, the policyowner must have a legitimate interest in the continued life of the insured at the time the policy is issued. This usually exists when there is a close family relationship or a lawful economic interest, such as a business relationship where the death of the insured would cause financial loss. STOLI attempts to evade this rule by having a third party with no true insurable interest initiate or finance a policy for the purpose of benefiting from the insured’s death.

That is why C. Insurable interest is the correct answer. The problem with STOLI is not trust ownership itself, since trusts may be used legally in life insurance planning when properly established. It is also not primarily about rescission rights or commission sharing. The key statutory violation is that the policy is effectively procured by or for someone who lacks a lawful interest in the insured’s continued life. New York licensing materials treat this as contrary to public policy and inconsistent with lawful life insurance underwriting standards.