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Beware: Stranger Originated Life Insurance (STOLI)

How STOLI or Spin-Life Works

Seniors should never trust a stranger who approaches them about a life insurancepolicy with big benefits for a very good reason. There are insurance agents who specialize in a particularly vicious kind of insurance fraud that can hurt both the insured and their families. It’s called STOLI or Spin-Life.

At face value it seems to make sense.

Stranger Originated Life Insurance (STOLI) or Spin-Life is particularly specious because it targets seniors and their families and can rob them of the only financial security they may receive. While STOLI profits increase enormously when the insured person dies, the insurance agents who originate the policy profit from a huge commission on the inflated life insurance policy.

The Incentive

The standard commission for life insurance for an insurance agent varies between 15 and 80 percent, depending on the type of life insurance and the company. Agents get their biggest commission when they originate a policy. If an insurance agent owns their own business, they can determine the amount of commission they receive.

When an insurance agent operates a STOLI scam, they convince a senior to invest their money in an inflated insurance policy they can’t possibly afford. For instance, a popular life insurance policy is $300,000 with monthly premiums of about $250 a month. The commission on this would be about $6,000.

The Scam

A STOLI schemer may offer an unsuspecting senior a $6 million life insurance policy. The senior wants to give their family as much as possible, so they agree to the policy. However, the senior can’t possibly pay the huge $400,000 premium.

It’s at this point that the scheming insurance agent buys the insurance policy from the insured in the form of a loan so the senior can pay for the premium. The insurance agents are going to receive almost $2 million on the inflated life insurance policy if they take a 30 percent commission, so the insured does not need to offer them any form of collateral. On top of their commission on the original policy, the agents also receive interest on the new loan. By the time the agents leave the home of the new insured, they have cleared $2 million in profits.

As part of their arrangements with the insured, STOLI schemers will often agree to pay mortgages and other debts while they are holding policies and loans. They don’t need to receive anything further from the insured, because they have received huge commissions and can count on the inevitability of the insured’s death, which will bring them millions in policy benefits.

While STOLI is often referred to as a scheme where the agents have no interest in the insured’s well-being, the scam often depends on making the insured happy enough to carry the scheme forward until the agents can collect upon the insured’s demise.

Recent Example

In 2011 in the state of New York, eight people were arrested for STOLI fraud, several of whom were insurance agents. It took the combined efforts of the Internal Revenue Service, the U.S. Postal Inspection Service and the New York State Department of Finance to bring the offenders to justice.

In order to catch these serious offenders, it often takes the concentrated efforts of several government agencies and law enforcement officers. Agents who are prosecuted for STOLI fraud face civil and criminal penalties in their state.


While STOLI is illegal in the United States, it is governed by state laws, and is sill practiced by insurance agents who hope to make fast money from the huge commissions on the inflated policies. These illegal schemers often target ailing seniors in the hopes of becoming millionaires when the insured dies.

The lesson is don’t trust a stranger who offers you the chance to give your loved ones more insurance benefits than you can afford because they may be taking away the one thing that helps your family and brings you peace of mind.

Individuals should not shy away from life insurance policies because of the risks of fraudulent behavior, but rather should work with reputable entities. Purchasing the right life insurance policy online can provide valuable peace of mind with ease and convenience.

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