When Must Insurable Interest Exist in a Life Insurance Policy

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  • Post last modified:October 21, 2019

Death is something you cannot escape in life. The worst part about it is that you cannot predict when yours is coming for you. As a result, taking a life cover is essential.

Whether you are taking a life protection policy for yourself or on behalf of someone, there are certain factors that you have to consider. The main goal of a life cover is taking care of the financial struggles that may end up arising when you die.

But, what happens when it is a cover on behalf of someone?

What is Insurable Interest?

When you have an insurable interest in something or someone, it means that in case of any injury, harm, or death, you will suffer losses or any other type of suffering, including emotional.

So, if you have an insurable interest towards a particular property, it means upon it damage, you will suffer financially or emotionally.

The same case applies to the life insurance policy. You can have an insurable interest in someone.

For you to take a life cover on someone, insurance companies will require you to have an insurable interest towards the person for you to be approved to insurer them.

When Exactly Does Insurable Interest Exist?

Here are some of the cases under which insurable interest exists in a life insurance policy.

Insurable Interest in Your Life

This is the very first step, and you have an insurable interest in your life. As a result, you are able to buy a policy for yourself. In such a case, you come to the policyholder as well as the insured.

When you are taking a life cover, your beneficiaries are not required to prove any insurable interest in you, and this is the most straightforward kind of insurable interest.

Insurable Interest by Blood and Marriage

Another case in which you will find insurable interest is when you are related to people in terms of blood or marriage. Due to this, you will find your dependents to qualify automatically.

What this means is that people such as your children, spouse, grandchildren, and grandparents, sisters, and brothers fall within the group of people who automatically have an insurable interest in you.

The advantage of this type of insurable interest is that you will have very little to prove whenever you want to insure one of them. The company will need to verify that you are related by blood and marriage.

Do Your Adopted Children Have an Insurable Interest?

Are you worried that your adopted children may not find insurable interest in you or the other way round?

Do you want to insure your adopted children, and you are worried?

No need for worries.

Your adopted children are considered to relate to you by blood by any insurance company. As a result, you have an insurable interest in each other. Hence you will not face any challenges whenever you want to insure them.

Business Relationship

A business relationship is another way through which you may have an insurable interest towards someone in life insurance policies. This happens whenever you have any financial dependency on the insured.

For example, if you have hired someone in your business to manage it, then you have an insurable interest in that person. As a result, you are allowed to insure the person.

This is because, in the case of the death of that particular person, you will suffer some loss in your business.

And this is why many big corporations take life covers for their most valued employees. In other cases, you will find business partners insuring each other.

Creditor-Debtor Relationship

Are you surprised?

You don’t have to. It is a case that happens, especially with credit companies lending out a huge amount of money.

The companies understand that in the event of the death of the debtors, they may end up losing a lot of money.

As a result, a credit company is allowed to take an insurance policy on the debtor that is equal to the amount of money owed. However, in many cases, there should be the debtor’s consent.

Insurable Interest Does Not Exist

Yes. There are cases in which insurable interest does not exist. You should understand these situations to avoid getting confused.

People who are not categorized to have an insurable interest in you include;

  • Cousins
  • Uncles and Aunts
  • Nephews and Nieces
  • Stepparents and stepchildren

Proving Insurable Interest

Proving insurable interest is a must requirement, especially when you are trying to insure another person. Any insurance company will be very keen to get proof of this to avoid cases where some people try to take life covers on other people to benefit in case they die.

This is the main reason why insurance companies are strict with insurable interest.

When you are not able to provide proof of insurable interest, many companies will reject your application. The companies require you to provide the evidence in the form of application.

Upon providing the application, the company will evaluate your case and get back with feedback, whether it has been approved or rejected.

However, the company will also contact the beneficiary, the policy owner, as well as the insured to make sure that there is a clear relationship between the parties. It is also the work of the company to prove that, indeed, the death of the insured will lead to losses on the insurer.

Once all that is ascertained, you will be approved for the policy.

Some states have various cases in which the insurable interest does not have to be proved. Some states require the insurable interest to be automatic in the following cases.

Where the insured is owing to your loans when there is an economic dependency, employer and employee, and business partner. However, it is crucial to verify whether your state allows such conditions.

Insurable Interest on Ex-spouse

You may be wondering whether there are any chances of insuring your ex-spouse.

The insurer will be interested in establishing that indeed, there is an insurable interest between you and the ex-spouse. As a result, you will be required to prove the case.

All you have to do is show the insurance company how you will be affected in case your ex-wife or ex-husband dies.

A good example is when you want to take insurance for an-husband whom you are already divorced. If he is taking care of you and your child, then it means that there is an insurable interest.

It means that in case the child’s father, you will suffer some loss. You can show the insurer that in the event the death of your ex-husband, you will experience problems raising the child. In that case, you can be allowed to take a life insurance policy on the ex-husband as the insured, and you will be the beneficiary.


If you intend to take a life insurance cover on behalf of someone, then insurable interest is crucial. Before you start shopping for an insurer, make sure that you understand whether you have an automatic insurable interest with the insured or not.

Always ensure that you have your facts right on how to prove your case in circumstances where the person you intend to insure does not qualify automatically. It is also advisable to talk to an insurance agent to understand the insurer’s terms.

Linda Chavez

I'm a burial & senior life insurance expert, independent agent, Founder & CEO of Seniors Life Insurance Finder. I have been working in this sector since 2004 and established my own company in 2014. I have a team of seven members, and we are trying hard to share the knowledge we've gathered. We know how difficult often it is to find an affordable policy. Hence, we are doing our best to help you.