Multiple Choice
Under which type of accounting would Company Z's cross purchase buy-sell agreement most likely be recorded and analyzed?
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1. Introduction to Accounting
Types of Accounting
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A life insurance arrangement which circumvents insurable interest statutes is called:
A
Universal Life Insurance
B
Stranger-Originated Life Insurance (STOLI)
C
Term Life Insurance
D
Whole Life Insurance
Verified step by step guidance1
Understand the concept of insurable interest: Insurable interest is a legal requirement that the policyholder must have a financial or emotional interest in the continued life of the insured person.
Review the definition of Stranger-Originated Life Insurance (STOLI): STOLI refers to a life insurance policy where a third party, who does not have an insurable interest in the insured, initiates the policy for financial gain.
Compare STOLI with other types of life insurance: Universal Life Insurance, Term Life Insurance, and Whole Life Insurance are legitimate types of policies that require insurable interest at the time of issuance.
Identify the key issue in the question: The problem specifically asks about a life insurance arrangement that circumvents insurable interest statutes, which aligns with the definition of STOLI.
Conclude that the correct answer is Stranger-Originated Life Insurance (STOLI), as it directly matches the description provided in the question.
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