Final answer:
Stranger originated life insurance (STOLI) violates the insurable interest requirement in life insurance contracts, which necessitates a legitimate interest in the life insured to lawfully benefit from the policy.
Step-by-step explanation:
Stranger originated life insurance (STOLI) is a type of life insurance arrangement in which an investor or group of investors purchases life insurance on an individual without insurable interest, with the intent to sell the policy for profit or benefit from the death benefit upon the individual's passing. STOLI has been found to violate the insurable interest requirement, which is a fundamental element in life insurance contracts. This contractual element mandates that the policy owner must have a legitimate interest in the insurance subject, typically a close relationship with the insured, such as a family member or significant financial dependence, thereby preventing wagering on lives through policies. Other elements that may be breached by STOLI include misrepresentation and lack of transparency, potentially leading to devastating financial and legal consequences for all parties involved.