Federal Appeals Court Voids $8 Million in STOLI Policies: What It Means for Life Insurance Consumers in 2026
A federal appeals court has upheld a ruling voiding two life insurance policies worth $8 million, finding they were illegal stranger-originated life insurance (STOLI) arrangements under New Jersey law. The June 2026 decision by the Third Circuit Court of Appeals represents the latest in a string of court victories for insurers challenging investor-backed life insurance schemes — and it carries important lessons for consumers about how life insurance should (and shouldn’t) be used.
What Happened: The Majerovic STOLI Case
The case centered on two policies originally issued in 2007 by Jefferson Pilot Life Insurance Co. (a predecessor to Lincoln National Life Insurance Co.) on the life of Haya Majerovic. The policies had a combined face value of $8 million and were ultimately purchased by Retirement Value LLC after a series of transfers. When Majerovic died in 2019, Retirement Value sought to collect the death benefits — but Lincoln filed suit in 2021 seeking a declaration that the policies were void from inception.
The appeals court agreed with the lower court that New Jersey law governed the case, since the policies were applied for by a New Jersey-based trust, signed in New Jersey, and delivered to a New Jersey address. Under New Jersey law — and consistent with the state’s Supreme Court precedent — STOLI arrangements violate public policy and are void from the start.
What Is STOLI and Why Is It Illegal?
Stranger-originated life insurance (STOLI) refers to arrangements where investors with no personal or financial relationship to the insured person initiate and fund a life insurance policy, intending to collect the death benefit when the insured dies. In essence, it’s a wager on someone else’s life — and courts have increasingly ruled that such arrangements lack the “insurable interest” required for a valid life insurance contract.
Insurable interest is a fundamental principle of life insurance: you can only insure someone’s life if you would suffer a financial loss from their death. Spouses, business partners, and parents of dependent children all have insurable interest. A group of investors who have never met the insured person do not.
The Court’s Reasoning
Writing for the three-judge panel, Judge Luis Felipe Restrepo was unambiguous: “The investors had no insurable interest in the life of the insured but yet were the intended beneficiaries of her life insurance policies.” The court also rejected Retirement Value’s claim for reimbursement of premiums paid, ruling the company had waived that argument by failing to adequately raise it in the district court.
The ruling leaves intact a 2024 decision by District Judge Robert Kirsch, who found the policies “undoubtedly” qualified as STOLI and granted summary judgment to Lincoln. According to court documents, Majerovic’s son entered into an agreement with investors in 2007 under which he would obtain life insurance on his mother’s life while the investors funded all premiums — a classic STOLI structure.
STOLI vs. Legitimate Life Settlements: Know the Difference
It’s important to distinguish STOLI from legitimate life settlements. A life settlement occurs when a policyholder who originally bought a policy for legitimate reasons later sells it to a third party — typically because their needs have changed. Life settlements are legal and regulated in most states. STOLI, by contrast, is designed from day one to benefit strangers — the policy was never meant to protect the insured’s family.
| Feature | STOLI (Illegal) | Life Settlement (Legal) |
|---|---|---|
| Original intent | Benefit investors from day one | Originally bought for legitimate coverage |
| Insurable interest | None — investors are strangers | Existed at time of purchase |
| Who initiates | Investors or intermediaries | Policyholder decides to sell later |
| Legal status | Void from inception | Regulated, legal in most states |
| Consumer impact | Can leave families with nothing | Provides liquidity to policyholders |
LIMRA Q1 2026 Data: Life Insurance Market Remains Strong
While courts continue to crack down on abusive STOLI arrangements, the legitimate life insurance market is thriving. According to LIMRA’s U.S. Life Insurance Sales Survey released June 12, 2026, total U.S. individual life insurance new annualized premium rose 7% year over year to $4.5 billion in the first quarter of 2026. The number of policies sold increased 5%.
“After record sales in 2025, the individual life insurance market remained strong in the first quarter, delivering solid premium growth,” said Sean Grindall, chief member relations and solutions officer at LIMRA and LOMA. “Despite consumers’ concerns about their personal finances and the broader economy, demand for life insurance remains steady.”
| Product Line | Q1 2026 Premium | Year-over-Year Change | Market Share |
|---|---|---|---|
| Whole Life | $1.6 billion | +3% | 36% |
| Indexed Universal Life (IUL) | $1.1 billion | +9% | 25% |
| Term Life | $791 million | +10% | 18% |
| Variable Universal Life (VUL) | $729 million | +12% | 16% |
| Fixed Universal Life | $219 million | -7% | 5% |
What This Means for Consumers
The STOLI ruling reinforces a simple principle: life insurance exists to protect families, not to serve as an investment vehicle for strangers. For consumers, the takeaways are clear:
- Buy life insurance for the right reasons. Life insurance should protect your loved ones from financial hardship if you die. It’s not an investment product to be flipped to strangers.
- Be wary of “free insurance” offers. If someone offers to pay your premiums in exchange for a stake in your death benefit, that’s a STOLI red flag. Walk away.
- Work with licensed, reputable agents. Legitimate agents and brokers help you find coverage that fits your family’s needs — not schemes designed to enrich third-party investors.
- Understand what you’re buying. LIMRA data shows 41% of adults say they are only somewhat or not at all knowledgeable about life insurance. Take time to learn the basics before signing.
Why This Matters to Policyholders
STOLI cases don’t just affect investors — they can devastate families. When a STOLI policy is voided, the death benefit disappears. The insured’s family gets nothing, even though premiums were paid for years. The Majerovic case is a cautionary tale: what looked like a clever financial arrangement left the insured’s beneficiaries with zero protection.
Key Takeaways from the STOLI Ruling
- Courts are consistent: Federal and state courts have repeatedly ruled that STOLI policies are void from inception. The legal trend is firmly against investor-backed life insurance schemes.
- Insurable interest is non-negotiable: You must have a genuine financial stake in the insured person’s continued life. Strangers betting on someone’s death is not insurance — it’s a wagering contract.
- Premium reimbursement is not guaranteed: Investors who fund illegal STOLI policies may lose every dollar of premiums paid. Courts are increasingly unwilling to bail out parties who entered void arrangements.
- Legitimate life insurance is thriving: LIMRA’s Q1 2026 data shows $4.5 billion in new premium, with policy counts up 5%. The market for real protection is strong and growing.
If you’re considering life insurance for the first time, our life insurance buying checklist walks through every step. For those concerned about qualifying with health conditions, see our no medical exam life insurance guide. And if you’re evaluating term vs. permanent coverage, our term vs. whole life comparison breaks down the costs.
Related Resources
- AM Best Insurance Ratings — verify any insurer’s financial strength before buying
- NAIC Consumer Resources — regulatory guidance on life insurance and policyholder rights
- LIMRA Q1 2026 Sales Report — full industry sales data
Frequently Asked Questions
Q: What exactly is stranger-originated life insurance (STOLI)?
A: STOLI is an arrangement where investors with no relationship to the insured person initiate and fund a life insurance policy, intending to collect the death benefit. Because the investors lack “insurable interest” — a financial stake in the insured’s continued life — courts consistently rule these policies void from inception.
Q: Is it legal to sell my life insurance policy?
A: Yes, in most states, if you originally bought the policy for legitimate coverage needs and later decide to sell it. This is called a life settlement and is regulated differently from STOLI. The key difference is intent at the time of purchase.
Q: How can I tell if someone is pitching a STOLI scheme?
A: Red flags include: someone offering to pay your premiums for you, promises of “free” insurance, being asked to apply for coverage you don’t need, and arrangements where strangers will receive most of the death benefit. Always work with licensed agents and ask who the beneficiary will be.
Q: What happens to the premiums paid on a voided STOLI policy?
A: In the Majerovic case, the appeals court ruled that Retirement Value waived its claim for premium reimbursement. Generally, investors in voided STOLI policies may lose all premiums paid — courts are increasingly unwilling to reward parties who entered illegal arrangements.
Q: How strong is the life insurance market right now?
A: Very strong. LIMRA reports Q1 2026 new annualized premium reached $4.5 billion, up 7% year over year. Every product line except fixed universal life posted gains, and policy counts increased 5% overall.
Q: What’s the safest way to buy life insurance?
A: Work with a licensed independent broker who can compare quotes from multiple carriers. Make sure the policy is in your name (or a trust you control), with beneficiaries you choose. Never let a stranger fund your premiums or control your policy.
Q: Does the STOLI ruling affect regular life insurance buyers?
A: No. If you’re buying life insurance to protect your family, with a legitimate insurable interest, these rulings don’t affect you. They target abusive investor schemes, not ordinary consumer policies.
If you’re ready to explore life insurance options that actually protect your family — not investors — compare quotes from top-rated carriers today. Our independent agents shop 50+ insurers to find the right coverage at the best price, with no obligation.
