Insurable Interest
A valid insurable interest may exist between the policy owner and the insured when the policy is insuring any of the following:
- Policyowner’s own life;
- The life of a family member (a spouse or a close blood relative); or
- The life of a business partner, key employee, or someone who has a financial.
Here’s how I explain it in my classes. Let me start by giving you the exact opposite approach and then I will answer.
Here’s the little story I tell – “If I am walking from my car to Walmart and I see a stranger in the parking lot struggling to walk, coughing up blood, grey complexion and just seeming like they are in their last few days on earth… can I run to the pay phone, call a Life insurance company and say “There’s someone in the parking lot here, in a green coat, I would like to buy some life insurance on him… umm FAST please!!!!”
No, you can’t buy life insurance on someone who is sick and whose financial support you don’t rely on.
So who can you buy life insurance on? People with whom you have an “insurable interest”.
- You always, always, always have an insurable interest on your own life. So you can always apply for life insurance on yourself.
- You can purchase life insurance on a family member (ie spouse or a close blood relative).
- If you own a business you can also buy a life insurance policy on your ownership partners, key employees, and someone who owes you money.
Regarding #3 if you take out a large enough loan from a bank that bank may want to purchase a life insurance policy on you. The opposite is not true, just because a bank loaned you money doesn’t mean you can buy a life insurance policy on the owner of the bank.
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