What is insurable interest?
If you wish to purchase a life insurance policy on someone else´s life, you need to have an interest in that person remaining alive or expect a financial or emotional loss if they die. This is called insurable interest, and it prevents people from purchasing insurance policies on elderly strangers and then collecting the money when they die.
It simply means that the person seeking coverage must stand to suffer financial loss as a result of the property being damaged. A homeowner will obviously suffer financial loss if his or her home burns down. You cannot, however, purchase insurance on your neighbors house and collect in the event the house burns as you do not have an insurable interest.
The proposer must have an insurable Interest in the life to be insured. This means that the proposer stands in such relation to the person being insured that he suffers loss by his/her damage and is benefited by his/her safety or existence. In every life insurance contract it is a pre-requisite to have Insurable Interest in the life that is being insured. Examples: a husband’s interest in his wife’s life, a father taking it for his child or one business partner taking it for another. Who is the beneficiary? The person to whom the policy proceeds will be paid in the event of the death of the insured.
