Rhode Island Life Insurance Practice Exam

Which life insurance arrangement allows one to legally circumvent insurable interest laws?

1. Term life policies

2. Universal life policies

3. Investor-originated life insurance

4. Group life insurance

The correct answer is: Investor-originated life insurance

Investor-originated life insurance, often referred to as IOLI or VIOLI (viatical or investor-originated life insurance), is structured in a way that allows investors to acquire a life insurance policy on the life of an individual without a traditional insurable interest. This arrangement occurs when investors purchase life insurance on someone else's life and expect to profit upon that person's death. In a typical life insurance scenario, the policyholder must demonstrate an insurable interest in the insured, meaning they would suffer a financial loss due to the death of the insured. However, IOLI circumvents this requirement by allowing individuals with no personal connection to the insured to take out life insurance policies, thus creating a market for individuals who are not directly related to or responsible for the insured's financial well-being. This practice can raise ethical concerns and has garnered regulatory scrutiny, particularly because it can incentivize investors inappropriately toward the longevity or mortality of the insured individuals, which is fundamentally different from traditional life insurance arrangements where the policyholder has a vested interest in the continued life of the insured.