Ohio is prohibiting STOLI transactions because "they feared that STOLI transactions becoming prominent in other states would also become a problem in Ohio. STOLI schemes are a manipulation of the growing life insurance settlement industry, estimated at $12 billion to $15 billion a year", according to a recent article at www.forbes.com.
The same article also gives some great info in explaining STOLI transactions. Here are some of the Q&A examples they give:
"Q: What is a STOLI transaction?
A: This transaction occurs when an investor, or "stranger," without any "insurable interest" in someone who has a life insurance policy invests in that policy and receives that person's death benefits when he or she dies. The scheme is an effort to get around state law that says only immediate family members, employers or charities have an "insurable interest" in someone that enables them to be beneficiaries of a life insurance policy.
Q: How does an investor or group of investors persuade a senior citizen to purchase the life insurance and establish the investor as a beneficiary?
A: Generally, investors in a STOLI transaction, or an insurance agent working on their behalf, will "sell" the senior citizen at an appealing setting such as a nice restaurant or country club. The investor will tell the targeted senior that he or she will essentially be getting a free life insurance policy. The investor offers to pay the premium, and sometimes even an upfront cash bonus, to the senior citizen in return for being named as a beneficiary."