In Investor-Originated Life Insurance (IOLI), who benefits when the insured dies?

In Investor-Originated Life Insurance (IOLI), the policyowner is the one who benefits when the insured dies. In the typical arrangement of IOLI, an investor purchases a life insurance policy on an individual who is not related to them. The investor pays the premiums and is named as the beneficiary of the policy. Therefore, when the insured passes away, the investor receives the death benefit from the insurance company, which can be a significant payout.

This setup is distinct from traditional life insurance policies, where the focus is usually on providing financial protection for the insured's beneficiaries, such as family members or loved ones. In contrast, IOLI represents a financial investment strategy, where the primary goal is for the policyowner to gain profit from the policy upon the death of the insured.

Understanding the distinguishing characteristics of IOLI helps illustrate the unique incentives and outcomes involved for both the policyowner and the insured.