Jun 12
What is insurable interest?
The concept of “insurable interest” is fundamental to the life insurance transaction. The requirement of insurable interest is what keeps life insurance from being nothing more than a gamble on human life.
As a practical matter, most people looking to buy life insurance have no issue establishing the requisite insurable interest to qualify. Now and then, however, we see people who are seeking to purchase a policy that doesn’t have the classic textbook insurable interest present.
One way around this problem is to have the proposed insured own the policy, and have the estate of the insured named as the initial beneficiary. Once the policy is in force, the ownership and beneficiary can be changed, without the necessity of having to establish an insurable interest.
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August 16th, 2006 at 1:26 pm
When I was working (practicing law)our firm took out life insurnce policies on all the partners, proceeds payable to the firm. I have been completely unaffiliated with the firm for at least a dozen years. Assuming that the firm has maintained the policy, will it be able to collect on the policy despite that it has had no insurable interest for the last 12 years. The firm is in Penna. and the policy was written there. I have not lived in Penna. for 17years. In other words, the firm will not suffer any loss upon my death. Thanx much.
August 17th, 2006 at 8:24 am
Perry – Unfortunately, despite the fact that it makes you uncomfortable, it is possible that your former firm may still own life insurance on your life. As such, they could, in fact, collect a death benefit upon your demise even though they no longer have any insurable interest in your life. The requirement of an insurable interest only applies at the time the policy is originally issued. After that, no jurisdiction or life insurance company that I am aware of requires an insurable interest at the time of death.