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 What is insurable interest?

Insurable interest, with respect to life insurance, is when the recipient of an insurance policy must prove their need for the death benefits. It can also refer to the right of property to be insured. These concepts owe their origin to a time when the life insurancelife insurance industry was less regulated than it is today, and therefore they are not as major of a component of modern laws with respect to life insurance contracts.

So what does that mean in plain english? Basically, it means that you can’t take out an insurance policy on a stranger. Insurable interest attempts to give some framework for the motivation for taking out a policy, as it assesses the “insurable interest” the beneficiary has in seeing the insured individual alive.

An Example

Stripping away all the technical terms – take the example of a single parent raising a young child. If this parent were to die, then the young child would suffer a financial loss because it was relying on that parent’s income. The child has an insurable “interest” in seeing that parent continue to live. This “interest” is insurable in the form of life insurance, which means that in this example the death benefit would be used to support the child, in lieu of the parent’s support.

This may seem like a pretty straight forward concept, but measuring the relationships between people who aren’t directly related can make it more complicated. Examples like these could include a company that takes out life insurance on their CEO who is very specialized because the company has a financial interest in seeing them continue to live, and they wish to insure that interest.

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Need More Information?

The legal guidelines for insurable interest can be complicated, with respect to taking out an insurance policy out on someone else’s life as this interest can be emotional as well as financial. Immediate family relationships are considered to have insurable interest in each other’s continued survival. Spouses are also assumed to have unlimited interest in the life of their partner, but this can be an issue for cohabiting couples.

It is advisable in these circumstances that you speak with an insurance professional who can give you guidance with respect to current insurable interest laws. works at making life insurance easier through our network of independent brokers across Canada.

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