Insurable interest is the concept that determines whether an individual can insure another person's life.
It requires that the person seeking insurance must have a financial stake in the continued life of the person being insured.
Purpose
Prevents speculation on human lives.
Ensures that insurance policies are not misused for financial gain from another's death.
Criteria for Insurable Interest
Financial Loss Requirement: The person applying for the insurance must demonstrate a potential financial loss if the insured person dies.
Automatic Insurable Interest: Exists in one's own life, lives of children, grandchildren, spouse, or dependents.
Examples
Educational Support: If you are paying for someone's education, they have an insurable interest in your life.
Employees: A company can have an insurable interest in a key employee as their loss could cause financial harm.
Timing
Insurable interest must exist at the time the policy is issued. It does not need to continue throughout the duration of the policy.
Changes in Circumstances
In cases like business partnerships, if partners split but a policy was established, it can remain despite no longer having insurable interest.
The policy can be maintained, transferred, or sold to the insured.
Company Policies
Some companies may require written consent from the insured even if there is no apparent insurable interest.
Acceptance of insurable interest can vary by company, with some accepting written consent as sufficient proof.
Key Takeaway
The existence of insurable interest ensures that insurance policies serve their intended protective purpose rather than being used for speculative or unethical reasons. Financial loss potential is a critical component of proving insurable interest.