Which of the following arrangements allows one to bypass insurable interest laws?

The arrangement that allows one to bypass insurable interest laws is Investor Originated Life Insurance (STOLI). This practice involves a scenario where an investor or a group of investors seek to take a life insurance policy on an individual without the traditional insurable interest requirement, such as being a family member or business partner. Essentially, in a STOLI arrangement, the insured individual is typically incentivized to obtain a life insurance policy that benefits the investors rather than their own dependents or beneficiaries.

STOLI arrangements are controversial and often scrutinized due to their implications on the life insurance market. They challenge the core principle of insurable interest, which is meant to ensure that insurance serves to protect against actual losses rather than merely serve as a financial investment vehicle. Insurable interest is critical because it establishes a legitimate reason for the purchase of a life insurance policy by ensuring that the policyholder will suffer a financial loss in the event of the insured person’s death.

In contrast, Whole Life Insurance, Term Life Insurance, and Universal Life Insurance are standard life insurance products that require the policyholder to have an insurable interest in the life of the insured. In these cases, the relationship between the insured and the policyholder is essential and serves to uphold the