Insurable Interest and Life Insurance Policies

Life insurance settlements can be substantial and often provide enough money to cover the needs of those left behind.  Since the benefits of life insurance policies are typically high, measures had to be taken to protect the public.  Every state requires that an insurable interest exists at the time of application for life insurance.  Insurable interest is established when the purchaser of the policy will benefit more from that person being alive, whether emotionally or financially.  Without insurable interest, a life insurance policy is considered void from the beginning.

The insurable interest requirement prohibits a stranger from taking a life insurance policy on someone and then causing that person’s death.  Policies without insurable interest are considered against public policy as they increase the risk of murder for profit.  Insurable interest must exist at the time of the application, but usually does not have to remain at the time of the person’s death.

Meeting the Insurable Interest Requirement
Courts and state laws have established criteria in determining insurable interest.  When an individual purchases a life insurance policy on himself or herself, there is automatically an insurable interest.  Insurable interest can also be created when there is a strong relationship between the purchaser and the insured.  The relationship can be based on blood, marriage or monetary interest.  Basically, it would have to be reasonable to assume that the purchaser is better off with the insured alive than dead.  An insurable interest based on blood or marriage may include the following individuals:

• Spouses
• Parents
• Children
• Grandparents
• Grandchildren
• Siblings
• Engaged couples (in some states within the U.S.)

Typically, it is more difficult to prove insurable interest if the purchaser was a cousin, aunt, uncle, niece, nephew or other distant relative.  The emotional and financial ties are not as strong with distant relatives.

Insurable interest can also be created based on a monetary interest, such as a business relationship.  For example, the death of a partner in a business partnership could negatively impact the company financially.  The death of a business partner could significantly disrupt the business and place a financial burden on the other owners.  Creditors can also have an insurable interest.  If the debtor dies and the estate cannot pay the debt, the creditor could suffer.  It is allowable for creditors to take out life insurance on a debtor up to the amount owed on the debt, as long as they have the debtor’s consent.  Examples include mortgage and credit insurance.

Life insurance companies have the responsibility to make sure that the purchaser of the policy has insurable interest.  If the life insurance company fails to meet this duty, the insurer could face a lawsuit.

Contact J.P. Gonzalez-Sirgo, a Florida life insurance claims attorney, at 866-71-CLAIM if you are in dispute with the life insurance company. J.P. Gonzalez-Sirgo is yourattorneys.com against the insurance companies.