Insurable Interest - Life Insurance

What Is Insurable Interest in Life Insurance?

<lingo>Within a life insurance policy, an insurable interest must be evident. It is not possible for just anyone to take out a life insurance policy on another person. Rather, the individual must have an insurable interest in that individual. This can be defined as some type of emotional, financial, or other type of loss he or she would suffer if the party covered dies. The life insurance company will evaluate the insurance interest a person has before determining if they can provide a policy to the person requesting it if that individual is not the covered party.</lingo>

Insurable Interest Cleary and Briefly Explained

To obtain a life insurance policy, individuals paying for the policy and potentially benefiting from the policy must be likely to experience some type of loss should that person die. If that person remains alive, the policyholder would be benefiting at least financially from their existence. It is logical, then, that a life insurance policy could help to reduce at least some of the risk of loss for the policyholder.

For example, a wife may want to take out a life insurance policy on a husband because he is the sole provider in the family or due to the emotional loss she would face in the event of his death. This is a clear instance of insurable interest. In this case, the wife is considered the policyholder, the one purchasing the policy to cover the husband. She is also the beneficiary or the person who will receive the funds after death.

<twitter>Within a life insurance policy, an insurable interest must be evident. It is not possible for just anyone to take out a life insurance policy on another person. </twitter>

On the other hand, if a distant relative wishes to take out such a policy, he or she must prove there is insurable interest here. If that person does not talk with, engage with, or financially benefit from the man’s continued life, there is no insurance interest existing here. The life insurance company would not be willing to provide a policy like this.

Also, if the purchaser of the policy is not listed as the beneficiary of the policy, the person who is named as the beneficiary – who will receive the funds from the death benefit – must demonstrate insurable interest as well.

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