Introduction
Investor-originated life insurance, also known as stranger-originated life insurance (STOLI), is a type of life insurance policy where investors purchase policies on the lives of individuals with the intention of selling the policies to third-party investors. When the insured person dies, the question arises as to who benefits from the policy payout. In this article, we will explore the different parties involved and how they may benefit from investor-originated life insurance policies.
The Insured
The insured person, whose life is covered by the policy, does not directly benefit from the policy payout in investor-originated life insurance. In fact, the insured may not even be aware that a policy has been taken out on their life. The insured’s role is primarily to qualify for the policy and undergo the necessary medical examinations.
The Investor
The investor is the party who initially purchases the life insurance policy on the insured’s life. The investor’s motivation is to profit from the policy payout when the insured dies. They may pay premiums on the policy and wait for the insured’s death to receive the death benefit. The investor benefits financially from the policy payout, which can be significantly higher than the premiums paid.
Third-Party Investors
In some cases, the investor may sell the policy to third-party investors. These investors purchase the policy from the original investor, taking over the premium payments and assuming the right to receive the death benefit. Third-party investors may see the policy as an investment opportunity and hope to profit from the insured’s death.
Life Settlement Companies
Life settlement companies are entities that specialize in purchasing life insurance policies from individuals or investors. These companies may also be involved in investor-originated life insurance policies. They may purchase policies from investors or third-party investors at a discounted rate, assuming the risk and potential reward of the policy payout upon the insured’s death.
Insurance Companies
Insurance companies play a crucial role in investor-originated life insurance policies. They underwrite and issue the policies, collecting premiums from the investor or third-party investor. When the insured dies, the insurance company is responsible for paying out the death benefit to the policyholder or the designated beneficiary.
Beneficiaries
The beneficiaries of the policy are the individuals or entities designated by the policyholder to receive the death benefit upon the insured’s death. In investor-originated life insurance, the beneficiary is typically the investor, third-party investor, or life settlement company that owns the policy at the time of the insured’s death. The beneficiary receives the policy payout from the insurance company.
Conclusion
In investor-originated life insurance, the insured does not directly benefit from the policy payout. Instead, the investor, third-party investors, life settlement companies, and insurance companies are the main parties that may benefit from the policy when the insured dies. The investor and third-party investors aim to profit from the death benefit, while life settlement companies assume the risk and potential reward of the policy. Insurance companies play a crucial role in underwriting and paying out the death benefit to the designated beneficiary.
References
– Investopedia: www.investopedia.com/terms/s/stranger-originated-life-insurance-stoli.asp
– The Wall Street Journal: www.wsj.com/articles/SB10001424052748703358504575544341483855446
