West Virginia State Life Insurance Practice Exam

What is the term for a life insurance arrangement that circumvents insurable interest statutes?

1. Investor-Originated Life Insurance

2. General Life Insurance

3. Term Life Insurance

4. Whole Life Insurance

The correct answer is: Investor-Originated Life Insurance

The term "Investor-Originated Life Insurance" refers to a specific arrangement in the realm of life insurance that allows investors to purchase policies on individuals with whom they have no personal relationship or insurable interest. This practice is significant because it operates around the legal requirement that the policyholder must have an insurable interest in the life being insured, which is intended to prevent moral hazard and abuse of the insurance system. In an Investor-Originated Life Insurance setup, investors may approach individuals, often the elderly or those with a perceived shorter life expectancy, to take out life insurance policies, offering them financial incentives. The investors then become the beneficiaries, profiting from the death benefits paid out when the insured passes away. This setup raises ethical and regulatory concerns, as it can lead to situations where the investor's financial interests might conflict with the wellbeing of the insured individual. The other choices, while legitimate types of life insurance, do not encompass the concept of circumventing insurable interest statutes. General Life Insurance refers broadly to life insurance products, while Term Life Insurance and Whole Life Insurance are specific types of policies that provide coverage for certain periods or for a person's entire life, respectively. However, none of these options involve the specific circumvention of insurable interest that is associated