People often have a lot of questions about life insurance policies and contracts because they can be hard to understand. When it comes to life insurance, one of the most common questions people have is what "insurable interest" means or refers to in the terms and context of a policy. Insurable interest is a term for potential beneficiaries who have a stake in the life, not the death, of the person for whom the life insurance policy has been filed. In these cases, a person or people with an insurable interest are those who will be hurt, either emotionally, mentally, financially, or in some other way, if the person for whom the policy is being bought dies. This rule was put in place so that random people can't buy life insurance policies for strangers and then use the money from the policy when the person dies. Insurance companies wouldn't be able to stay in business for very long if they had to pay out on multiple life insurance policies for the same person all the time, especially if the person was old or about to die soon. This clause can also help stop people from buying life insurance policies on other people and then doing things to cause or speed up their death.
If you buy a life insurance policy for yourself, it is often assumed that you have an insurable interest, since a person cannot collect their own life insurance payout after they die. Most of the time, if you buy life insurance for someone else, you will have to prove to the insurance company that you are an insurable interest. That is, you have to show how you are related to the person whose life insurance policy you are buying. You need to care enough about the person, such as through a close relationship, marriage, or a financial stake in a joint business venture. The person for whom the policy is bought needs to be worth more to those who can get insurance if they are alive than if they are dead.
Most companies that sell life insurance require that you have an insurable interest. Common examples of insurable interests are children, spouses, parents, business partners, and other similar groups of people. As time goes on, more and more life insurance companies are changing how they define insurance interest to be more open and flexible. But you still have to show that you care about the person for whom the life insurance policy is being written. When looking into different life insurance policies, it's important to talk to the person helping you about the types of things that can be insured. If the company doesn't think your situation and personal interests are insurable, there's no point in filling out all the paperwork and going through the physical exams. Remember that the person needs to be set up as an insurable interest when the policy is filed, not when the person is lost or dies.
