Utah Life Producer Practice Exam

What term describes an investor buying a life policy on an elderly person in order to sell it for a life settlement?

1. Stranger-owned life insurance (STOLI)

2. Investment-oriented life insurance

3. Whole life policy

4. Term life policy

The correct answer is: Stranger-owned life insurance (STOLI)

The term that best describes an investor buying a life policy on an elderly person with the intention of selling it for a life settlement is known as "Stranger-owned life insurance" or STOLI. This practice involves an investor purchasing a life insurance policy on someone else, often an older individual, with the goal of profiting from the policy when the insured passes away. STOLI arrangements often raise ethical and regulatory concerns because they can be viewed as a way to circumvent insurable interest laws. Normally, to take out a life insurance policy on someone else, the policyholder must have a legitimate interest in that person's life, which typically includes close family relationships or significant financial ties. These regulations are in place to prevent individuals from taking out policies on the lives of people they have no genuine connection to, thus treating life insurance as an investment tool rather than a safety net for dependents. The other options do not accurately capture this specific situation. Investment-oriented life insurance refers to policies designed primarily for investment purposes rather than for traditional life insurance benefits, but it does not specifically denote the life settlement aspect. Whole life and term life policies are types of life insurance products but do not pertain to the specific activity of an investor purchasing a policy for potential profit