Final answer:
STOLI violates the legal purpose element of a contract since it may contravene insurable interest laws and fundamentally abuses the purpose of life insurance, which is to safeguard against financial loss from the death of someone with a legitimate relationship to the insured.
Step-by-step explanation:
Stranger Originated Life Insurance (STOLI) arrangements have been found to be in violation of the contractual element of legal purpose. A STOLI is an arrangement in which a person with no insurable interest in the life of another takes out a life insurance policy on that person, often with the intent to sell the policy to a third party. Contracts must have a legal purpose to be enforceable, and STOLIs may violate insurable interest laws, which require that the policy owner must have a legitimate interest in the continuation of the life of the insured.
While the elements of offer and acceptance, consideration, and competent parties may be met in a STOLI arrangement, the requirement for a legal purpose is not, as the intent behind such policies is often speculative and not designed to provide financial protection due to the loss of a loved one, which is the fundamental purpose of life insurance.