An investor group recruits a 75-year-old to apply for a $5 million life insurance policy. The investors fund the premiums via a non-recourse loan; at the end of the two-year contestability period, the policy is transferred (in satisfaction of the loan) to the investor group, which has no prior relationship with the insured. Under the Delaware Supreme Court's insurable-interest test in PHL Variable v. Price Dawe, 28 A.3d 1059 (Del. 2011):

Why this is the answer

Stranger-Originated Life Insurance (STOLI) and Investor-Originated Life Insurance (IOLI) schemes use the insured as a 'straw' applicant: investors finance premiums via non-recourse loans, ride out the two-year contestability period, then take the policy in satisfaction of the loan. In PHL Variable v. Price Dawe (2011), Delaware's Supreme Court held that the insured's intent to sell is not the test: a policy is void ab initio when a third party uses the insured as an instrumentality to procure it. Not every state agrees; New York's highest court let an insured buy a policy on his own life intending to sell it (Kramer v. Phoenix Life, 2010). The contestable-period expiration bars insurer rescission for misrepresentation but does NOT validate a policy that was a wagering contract from inception — insurable interest goes to the existence of the contract, not merely its voidability.