State RegulationsOH specificDifficulty 2/5
An Akron man in good health is recruited by a promoter to apply for a new life insurance policy, with the understanding that he will sell the policy to investors once he owns it. The promoter assures him the arrangement is standard. Under Ohio law, this arrangement is:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
This is stranger-originated life insurance (STOLI): a policy initiated primarily for the purpose of being sold to investors who have no insurable interest in the insured. Ohio addresses STOLI under ORC 3916.05(B) and OAC 3901-9-04, and the arrangement is prohibited regardless of how the recruitment is framed. Being the original applicant, disclosing the plan, or the investors' willingness to buy does not cure the lack of insurable interest.
Why the other options are wrong
- B) Original applicant status does not matter; what is prohibited is initiating the policy with the primary intent to sell it to investors.
- C) The investors have no insurable interest in a stranger's life, and STOLI is prohibited under ORC 3916.05(B) even if structured to look like a later sale.
- D) Telling the insurer does not legitimize the arrangement; Ohio's STOLI rule applies regardless of disclosure.
Memory hook
STOLI = buying life insurance to sell it — banned in Ohio.