Tennessee Insurance Practice Exam

What term describes a life insurance arrangement that circumvents insurable interest statutes?

1. Term life insurance

2. Investor-Originated Life Insurance

3. Whole life insurance

4. Universal life insurance

The correct answer is: Investor-Originated Life Insurance

Investor-Originated Life Insurance (IOLI) describes a life insurance arrangement that circumvents insurable interest statutes. This type of insurance is structured in a way that allows investors to purchase life insurance policies on individuals without the requirement of demonstrating an insurable interest in them. Typically, in traditional life insurance arrangements, the policyholder must have a legitimate reason to insure the life of the insured, such as a familial relationship or a financial stake. However, IOLI allows for the investment community to effectively "bet" on the life of an individual, creating scenarios where the investor stands to gain a financial return upon the death of the insured, thus sidestepping the insurable interest requirements normally found in life insurance regulations. The other types of insurance mentioned, such as term life, whole life, and universal life, follow conventional insurance practices, requiring insurable interest and typically focusing on fulfilling the needs of the policyholder or their beneficiaries rather than serving as investment vehicles for third parties.