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How to Determine Insurable Interest for Life Insurance

There are multiple reasons why people buy life insurance coverage. For most instances, though, individuals want to ensure that someone whom they love and care about will not need to struggle financially should something happen to them.

Certainly, one of the key aspects of life insurance is the named beneficiary that is listed on the policy. The beneficiary is defined as the person or entity that is named in the policy to receive the proceeds of the death benefit. A beneficiary is often a person, such as a surviving spouse or children. However, the beneficiary does not always have to be a person. A beneficiary can be a person, a trust, an estate, or a business. In any case, however, there must be an “insurable interest” in the insured.

An insurable interest exists when an insured person essentially derives a financial or other type of benefit from the continuous existence of the insured person – and conversely, then, if the insured person were to die, the beneficiary would suffer some type of financial loss.

Why Must There Be An Insurable Interest?

Prior to purchasing any type of insurance, there must be an insurable interest between the insured and the beneficiary that is named in the life insurance policy. For example, it would not make sense to purchase a homeowners insurance policy on somebody else’s house. In fact, the application would likely not even be accepted on the basis that there is no insurable interest.

A person has an insurable interest in something or somebody when loss of that item or person would cause the other to suffer some type of financial loss or other kinds of losses. For life insurance, everybody is considered to have an insurable interest in their own lives. In addition, everyone is considered to have an insurable interest in the life of their spouse and their dependents. Therefore, a person is considered to have an insurable interest in the life of the purchaser of the policy and has a reasonable expectation of a profit or other type of benefit received from the continued life of the person who is insured by the coverage.

It is valuable to know that the insurable interest in life insurance must be at the time of application. In fact, every state requires that an insurable interest exist with the insured and the beneficiary at the time that the life insurance application is written.

Life insurance policies that are issued where there is no insurable interest are regarded to be null and void from the very beginning. This is because they are actually against public policy. In some ways, they are considered to be against public policy because they could encourage murder for profit. Without the insurable interest requirement on life insurance policies, it could possibly happen that some people may be tempted to purchase life insurance policies on other people in order to collect the death benefit by having the insured person killed.

Since a person is always considered to have an insurable interest in his or her own life, the beneficiaries of policies that an insured purchases on himself or herself do not need to have an insurable interest. This is because it is assumed that the insured would name as beneficiary a person (or persons) who love him or her and would want them to have a long and healthy life. Therefore, a person can purchase as much life insurance as he or she wishes (subject to other insurance company limits), and can name whoever he or she wishes as the policy beneficiary.

State laws have established some guidelines as to who may or may not have an insurable interest in an individual. These persons fall into three different categories. The categories include those who are related by blood or marriage, those with business relationships, and creditors.

Those who are related by blood or marriage generally have an insurable interest in their spouses, children, and dependents. These people would normally include husbands and wives, parents and children (including children who are adopted), grandparents and grandchildren, brothers and sisters, and engaged couples in most states. Those who may not fall into the insurable interest category with regard to blood or marriage would include other relatives due to marriage, nieces and nephews, cousins, uncles and aunts, and stepchildren and stepparents.

Business relationships considered to have an insurable interest would include those with a financial dependency. In this category, an insurable interest may be created in an otherwise non-insurable interest relationship. Someone who receives an economic benefit from the continued life and health of another person has an insurable interest in that other person’s life. Perhaps you’re curious if you can get life insurance with an unfavorable health condition; maybe someone you know needs life insurance for type 1 diabetics or diabetic insurance coverage in general. We are here to get your questions answered and will help you get the coverage you want and need.

Creditors are also allowed to take out life insurance on the lives of their debtors. However, this must involve the debtor’s consent, and the amount of life insurance can only be up to the limit of the debt. An example of a creditor who qualifies for an insurable interest relationship is a mortgage company.

In any of the above scenarios, the life insurance company has a duty to exercise care in determining if insurable interest exists and whether or not the consent of the person insured has been obtained. If the insurance companies do not exercise caution in this area, they could be sued.

As mentioned, the insurable interest must exist at the time of the life insurance application, and not necessarily at the time of the loss. An example would be a woman who purchases a life insurance policy on the life of her fiancé. If the relationship breaks up, the woman will still be able to collect benefits on the policy as long as she keeps it in force by paying the premiums.

Finding the Best Life Insurance Policy for Your Specific Needs

When you are trying to find life insurance for anyone with insurable interest, it’s important that you find the best kind of life insurance protection for you and those you care about. There are several different kinds of life insurance policies that you can choose from when you’re exploring different kinds of coverage. It’s significant that you know all of the various options available to you when are comparing plans.

There are two main types of life insurance, term and whole. Inside of these two plans, there are several different kinds of variations, and all of them have different pros and cons that you should know about to ensure that you get the best plan to fit your desires. In this specific article, we are only going to talk about the two most popular basic kinds of life insurance.

The first kind is a whole life insurance plan. This plan is a permanent form of coverage, meaning if you continue to give payment to the monthly premiums, you’ll have life insurance coverage. These policies are a great option for anyone that doesn’t want to worry about losing life insurance protection or about having to reapply in the future. Because whole life plans are permanent coverage, they’re usually more costly than other options.

The most popular option for life insurance is a term life insurance policy. These plans have an expiration date attached to them, and after that date, the plans are no longer active, which means you won’t have insurance protection after that.  If you want coverage, you’ll have to reapply for a new life insurance plan. Because these plans will expire, they are much more affordable than other options. If you are wanting to have the most economical plan available, term insurance plans are going to be one of the best choices.

When seeking the best life insurance coverage for your needs – and the financial needs of your loved ones – it is best to compare policies, insurers, and premium quotes. In doing so, it is wise to do so directly through a business that has access to multiple insurance companies.

When you’re ready to start comparing, our team at InsureNow 365 will help. We work alongside many of the top-ranked life insurance carriers in the marketplace today, and we will get you all the details you need quickly and efficiently – directly from your computer at home, and without needing to ever meet with a life insurance agent in person. There are many options for you that we can help with, even life insurance policies for obese individuals, smokers life insurance, or life insurance coverage for veterans . When you’re ready to get started with this process, get a set of quotes by using our form on this page.

If you do have any questions as you go through the information, or as you are running life insurance premium quotes, please feel the freedom to get in touch with us directly. We have professionals on staff who can walk you through the step by step quote process, and who can answer any of your questions or concerns that you might have about life insurance and the protection that it can provide. We can be reached by calling 888-229-7522 toll-free.

We know that the purchase of life insurance can at times be a huge decision. Therefore, we want you to have all your questions answered and provide all the information you are needing as you go forward in this significant next step.

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