Insurable Interest and STOLI Case Questions

A person applies for coverage on their own life and names a spouse as beneficiary. The application accurately describes the relationship, and there is no investor agreement or prearranged sale. Which conclusion best fits the basic exam principle?

1. This is a conventional family-interest situation, subject to applicable law and policy requirements.
2. The spouse can never receive life insurance proceeds without proving a debt.
3. The policy is STOLI because a beneficiary is a different person from the insured.
4. The policy is automatically void if the beneficiary is revocable.

Before an older applicant signs a life application, an investor agrees to fund premiums, reimburse an intermediary, and receive policy ownership after a short period. The investor has no family, business, or creditor relationship to the insured. What is the strongest concern?

1. A potential STOLI arrangement because the policy may have been procured from inception for an investor lacking insurable interest.
2. An ordinary policy loan because premiums were paid by someone else.
3. A harmless beneficiary change because ownership transfers are always allowed immediately.
4. No issue because the applicant signed the form.

A business owner purchases a policy for a legitimate succession plan and retains it for years. After the business relationship ends, the owner considers selling the policy to a settlement provider, with no investor agreement when the policy was issued. Which statement is most accurate?

1. A later sale is automatically STOLI because every policy transfer is prohibited.
2. The later transfer must be analyzed under applicable settlement and transfer rules; it is not automatically the same as prearranged STOLI procurement.
3. The original insurable interest disappears and retroactively invalidates every policy.
4. A transfer is tax-free and valid regardless of notice or licensing rules.

A corporation applies for life coverage on a key executive whose departure would cause documented financial loss. The executive is informed and consents, and the corporation is owner and beneficiary. What issue should be reviewed?

1. Whether the corporation’s relationship and any applicable consent or notice requirements support the coverage.
2. Whether a corporation is categorically forbidden from owning life insurance.
3. Whether the executive’s spouse must be the sole beneficiary in all cases.
4. Whether the policy is automatically a settlement contract.

A lender makes a documented loan to a borrower and requests life coverage tied to the unpaid balance. The policy amount is limited to the debt and declines as the loan is repaid. Which fact most strongly supports an insurable-interest purpose?

1. The creditor has a financial interest in repayment and the coverage tracks the debt.
2. The lender expects to profit from any death, regardless of loan balance.
3. A stranger purchased the policy before the loan existed.
4. The borrower’s consent eliminates the need to examine the creditor relationship.

The insured purchases a policy on their own life and names a relative. Years later, the insured changes a revocable beneficiary to a charity. No investor funded premiums or arranged a transfer. What is the best answer?

1. The beneficiary change alone does not establish a STOLI scheme; verify the owner’s contractual right and applicable Texas rules.
2. Any charitable beneficiary is presumed to lack insurable interest, so the policy is void.
3. A later change proves that the original application was fraudulent.
4. A beneficiary can change only if the insurer becomes owner.

An investor says a policy can be transferred after two years, so any arrangement is unquestionably lawful regardless of the original application and funding agreement. Which response is most accurate?

1. The statement is too broad; a waiting period does not automatically cure every procurement, misrepresentation, statutory, or contract issue.
2. Correct; after two years every transfer is guaranteed valid and tax-free.
3. Correct only if the investor paid all premiums.
4. Incorrect because life policies can never be assigned.

An applicant signs an application, but an outside investor selected the amount, pays premiums through an intermediary, and has a contract to obtain the policy shortly after issue. Which fact is most important to investigate?

1. Whether the policy was arranged at inception for the investor’s benefit despite the applicant’s signature.
2. Whether the applicant used blue or black ink.
3. Whether the beneficiary has a different mailing address.
4. Whether the insurer sells any other products.

A parent applies for a policy on an adult child’s life, owns it, and names themselves as beneficiary. The child signs the application and consent. What is the best analytical step?

1. Check the Texas insurable-interest relationship, insured’s consent, ownership, and policy amount under governing law.
2. Assume the arrangement is STOLI because the applicant and insured differ.
3. Assume any parent can buy unlimited coverage on any adult child without review.
4. Ignore the child’s consent because family members never need to sign.

An application lists an older insured as policy owner. An investor pays the initial premium, promises a purchase price before issue, and is designated to take ownership soon after policy delivery. The investor has no relationship to the insured. Which description best fits?

1. Potential STOLI indicators that require compliance and legal review of the entire transaction.
2. Ordinary policy delivery because the application was signed.
3. A guaranteed-insurability exercise because ownership changes.
4. A normal beneficiary update with no need to review funding.