Insurable Interest In Life Insurance
If you were to suffer financial or emotional loss if the insured individual passed away — you have insurable interest. Insurable interest allows you to buy a life insurance policy for someone else, as long as they consent to coverage. If you are purchasing a life insurance policy for yourself, you automatically have insurable interest. Learning how to prove insurable interest and when you can likely qualify to purchase a life insurance policy for a loved one can make the process easier to understand.
- Written by Lindsey Crossmier
Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.Read More
- Edited ByLamia Chowdhury
Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.Read More
- Financially Reviewed ByEric Estevez
Owner of HLC Insurance Broker, LLC
Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.Read More
- Published: September 30, 2022
- Updated: May 23, 2023
- 5 min read time
- This page features 2 Cited Research Articles
- Edited By
What is Insurable Interest in Life Insurance?
To purchase any life insurance policy, you must have insurable interest. To have insurable interest, you must rely on the services or finances of the insured individual. If the insured individual were to pass away, you would experience hardship or have to cover lost funds.
For example, if your wife covers most of the family’s bills, you will experience financial loss if she were to suddenly pass away. Therefore, you have insurable interest.
If you don’t have a relationship with the insured or wouldn’t suffer any emotional or financial losses if the insured passed away — you do not have insurable interest.
Examples of When Insurable Interest Exists
If you are purchasing a life insurance policy for yourself, you automatically have insurable interest. If you are purchasing life insurance for someone else, there are common scenarios when you likely have insurable interest.
- If you watch your children while your spouse works, you both have an insurable interest with one another. If you were to pass away, your spouse would have to hire a nanny to care for the children. If your spouse passed away, you’d need to cover their lost salary.
- Family Member
- If a close family member provides services or financial aid to you, such as a sister caring for you as you recover from cancer — they would have insurable interest.
- Financially dependent ex-spouse
- Even if you’re divorced, if you rely on funds from your ex-spouse, you have insurable interest. For example, if your wife pays child support, you will suffer financial losses if she were to suddenly pass away.
- Employer or business partner
- If you have a business partner, you could risk financial and labor loss if they were to pass away. In some cases, you can have insurable interest. According to the Florida Legislature, a business entity related to insurable interest includes but is not limited to a joint venture, partnership, corporation, limited liability company, and business trust.
When does insurable interest not exist?
Insurable interest does not exist between individuals with no financial or emotional dependence. You do not have an insurable interest with a stranger, or even some family members.
Just because you are blood related, doesn’t mean you have insurable interest. There must be a dependency or loss if the insured were to pass away.
For insurable interest to exist in a business relationship, there must be evidence of financial ties between the policyholder and the insured. Simply being someone’s employer or partner doesn’t mean you automatically have insurable interest.
|Scenario 1 You are Janet’s sister, but you don’t ever see her.||You do not have insurable interest.|
|Scenario 2 You are Amy’s wife. You live together.||You do have insurable interest.|
|Scenario 3 Ryan is your employer. You both work at Target.||You do not have insurable interest.|
|Scenario 4 David is your business partner. You just opened a law firm together.||You do have insurable interest.|
Proving Insurable Interest
To prove insurable interest, you can gather a written statement or declaration from the person you’re trying to get insured. The life insurance company may also request to speak with the individual or ask for further documentation.
For example, if your ex-spouse covers the majority of the bills, having a bank statement would help prove your insurable interest.
You’ll need ample information to be able to take out a life insurance policy on anyone, even if that person is a family member. You’ll need a signed consent form, along with their medical history. Having information ready with written consent will help prove insurable interest.
Why Insurable Interest Is Important
If insurable interest wasn’t required with life insurance policies, anyone could take out a life insurance policy on anyone. People could be scammed or victimized.
For example, one could take out life insurance policies on a sick older adult in hopes of cashing out a death benefit.
One could even be incentivized to take a life insurance policy out on a neighbor or stranger, only to hurt them in hopes of receiving a benefit.
Generally, if insurable interest did not exist, good people could be tempted to abuse life insurance resources and endanger others.
Frequently Asked Questions About Insurable Interest
2 Cited Research Articles
- The Florida Legislature. (2022). The 2022 Florida Statutes. Retrieved from http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0600-0699/0627/Sections/0627.404.html
- Boonswang, C. (n.d.). When Must an Insurable Interest Exist for a Life Insurance Policy to Be Valid? Retrieved from https://www.hg.org/legal-articles/when-must-an-insurable-interest-exist-for-a-life-insurance-policy-to-be-valid-51703