What is Insurable Interest?

What is Insurable Interest?

Insurable Interest is the expectation of a monetary loss that can be covered by insurance. For example, a wife can have life insurance on her husband because she relies on him for financial support - there exists an insurable interest in her husband.

What is an Insurable Interest as it relates to a Life Insurance Policy?

When you buy a life insurance policy on someone else there must be an insurable interest between you and the person being insured on the life insurance policy.

Types of Insurable Interest for a Life Insurance Policy:

  • Your Own Life - Every person has an unlimited insurable interest in his or her own life. The insured person can choose whoever they want to be the beneficiary (who the proceeds are paid to upon the insured’s death) of their life insurance policy.

  • Parent and Child, Husband and Wife, Brother and Sister - All have insurable interest in each other, because of blood relation or marriage.

  • Your creditors - All creditors may have an insurable interest in you if you owe them money. The creditor can be the beneficiary of your life insurance policy for the amount of any outstanding loan.

  • Business relationships - May create an insurable interest. An employer may insure the life of an employee, and an employee may insure the life of an employer.


Insurable interest must exist at the time the life insurance policy is purchased. However, for a life insurance policy, insurable interest is not required at the time of loss.

Example: - A man may insure the life of the woman he is engaged to. If they marry and then are divorced, he can continue paying the premiums. If his ex-wife dies after the divorce, he would receive the death benefit.


Review:

All of the following may have life insurance beneficiary insurable interest status:

Children of a parent, Parents of a child, Husband for a wife, Wife for a husband, Creditor for a debtor, Employer for an employee, and Employee for an employer.

In order to purchase a life insurance policy, the person buying the policy must have an insurable interest in the person insured on the life insurance policy.

Learn more about who you can insure for life insurance and why.


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