Who benefits from Investor-Originated Life Insurance (IOLI) upon the insured's death?

Investor-Originated Life Insurance (IOLI) is a type of life insurance policy where an investor, who is not necessarily related to or has any personal interest in the insured, purchases a life insurance policy on the life of the insured party. When the insured passes away, the investor, as the policyowner, receives the death benefit. This structure is designed to capitalize on the life insurance payout for profit, making the investor the primary beneficiary in a sense, as they gain financially from the policy.

The insurance company pays out the death benefit to the policyowner, who in this case is the investor, rather than the insured or their family. This differs from traditional life insurance policies, where the insured's beneficiaries, typically family members, would receive the death benefit. Understanding this dynamic is crucial in recognizing the unique nature of IOLI compared to standard life insurance arrangements, which are usually predicated on familial or closely connected relationships between the insured and the beneficiaries.