State RegulationsMA specificDifficulty 2/5
A group of investors arranges for strangers to buy life insurance policies in Massachusetts with the sole aim of selling those policies to the investors once the policies can be transferred. Under M.G.L. c. 175, § 223A, this arrangement constitutes:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
M.G.L. c. 175, § 223A defines the fraudulent life settlement acts, and stranger-originated life insurance — policies initiated at the outset with no insurable interest, bought purely to be sold to investors — is squarely among them. The arrangement inverts the purpose of life insurance: coverage exists because of a genuine insurable interest, not as raw material for an investor resale scheme. Massachusetts treats the practice as fraud within its life settlement framework (M.G.L. c. 175, §§ 212–223E), exposing participants to the penalties of the Act.
Why the other options are wrong
- B) Insurer notice does not legitimize the scheme; § 223A makes the stranger-originated structure itself fraudulent regardless of notice.
- C) There is no approved viatical-pooling channel for policies bought to be flipped; the arrangement is a fraudulent life settlement act under M.G.L. c. 175, § 223A.
- D) Group conversion rules transfer an individual's own coverage to an individual policy; they do not authorize investor-driven policy origination.
Memory hook
Buying lives you never cared about is STOLI — and STOLI is fraud under § 223A.