Rhode Island Life Insurance Practice Exam

What is a life insurance arrangement that circumvents insurable interest statutes called?

1. Investor-Originated Life Insurance

2. Fractional Life Insurance

3. Universal Life Insurance

4. Term Life Insurance

The correct answer is: Investor-Originated Life Insurance

The arrangement known as Investor-Originated Life Insurance (IOLI) is specifically designed to bypass the traditional insurable interest requirements that are usually mandated by law before one can take out a life insurance policy on another individual. In standard situations, insurable interest means that the policyholder must have a legitimate interest in the continued life of the insured, commonly seen in relationships such as between family members or business partners. Investor-Originated Life Insurance operates by allowing investors to purchase life insurance policies on individuals without any personal ties or vested interests in their well-being. Instead, the objective is to profit from the death benefit of the policy. This raises ethical concerns and legal scrutiny, as such practices can be seen as speculative or profit-driven, rather than protective in nature. The other choices, while relevant types of life insurance products, do not specifically relate to circumventing insurable interest statutes in the same manner as IOLI. Fractional Life Insurance refers to a type of ownership structure where life insurance policies can be owned in portions, while Universal Life Insurance and Term Life Insurance are standard types of policies designed for life coverage but still operate within the boundaries of insurable interest regulations.