A promoter recruits seniors to apply for new life insurance policies, arranges financing for the premiums, and agrees that ownership will pass to investor groups shortly after issue. Under the New York Insurance Law, this arrangement is:
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under N.Y. Ins. Law §7815, no person shall directly or indirectly engage in any act, practice or arrangement that constitutes stranger-originated life insurance, and failure to comply is a defined violation under the Insurance Law's unfair trade practices provisions. The promoter's plan fits the statutory definition because the policies are initiated, at or prior to issuance, for the intended benefit of investors who have no insurable interest in the insureds' lives. Knowing violations can also draw civil penalties imposed by the Superintendent after notice and hearing under N.Y. Ins. Law §7816.
Why the other options are wrong
- A) The applicant's own signature does not sanitize an arrangement initiated for the benefit of a stranger without an insurable interest; the statute reaches indirect arrangements as well as direct ones.
- B) Registering as a financing entity does not authorize originating policies for persons who could not lawfully initiate them.
- C) The prohibition attaches to the stranger-originated arrangement itself, at or prior to issuance — not only when a later settlement occurs.
Memory hook
Direct or indirect, STOLI is prohibited — an applicant's signature cannot launder it.