Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?

In Investor-Originated Life Insurance (IOLI), the primary beneficiary when the insured dies is indeed the policy owner, commonly an investor or financial entity that has purchased the life insurance policy. This type of arrangement allows the policy owner to profit from the death benefit of the policy, which is a significant distinction of IOLI compared to traditional life insurance models where the insured or their family typically benefit.

The policy owner invests in the life insurance policy with the expectation that they will receive a payout upon the death of the insured. This arrangement is often structured to capitalize on the life expectancy of the insured, meaning the policy owner has a vested financial interest in the life of the insured, as their financial return hinges directly on when the insured passes away.

Understanding this structure is vital in grasping the nuances of life insurance practices, as it underscores the different motivations and outcomes for parties involved in IOLI, compared to conventional life insurance setups.