Denied Life Insurance Claims Due to Lack of Insurable Interest: What It Means and How We Fight Back
Insurable interest is a fundamental legal requirement in life insurance law. Without it, a policy may be considered void from the outset. If a life insurance claim is filed and the insurer determines that the beneficiary did not have a valid insurable interest in the life of the insured at the time the policy was purchased, the claim may be denied outright. At LifeInsuranceAttorney.com, our experienced life insurance lawyers handle these complex disputes and fight for full recovery of benefits—especially when insurers like John Hancock, Protective Life, Equitable, Mutual of Omaha, and others attempt to deny claims based on this technical but critical issue.
What Is Insurable Interest in Life Insurance?
Insurable interest refers to the legal and financial stake one person has in the continued life of another. The law requires that this interest exist at the time the policy is initiated—not necessarily at the time of death. This rule is designed to prevent individuals from profiting off the deaths of strangers or people with whom they have no real relationship. While many people assume life insurance can be freely taken out on anyone, this is not the case.
If an insurer believes that a policy was obtained without a legitimate connection between the policyholder and the insured, the claim may be rejected. Most major insurers—including Penn Mutual, Globe, MassMutual, Pru Life, Corebridge, and others—scrutinize applications for signs that insurable interest may have been lacking.
Who Typically Has a Recognized Insurable Interest?
Insurable interest is often automatically assumed in certain relationships:
Spouses and family members: A spouse, parent, child, or sibling generally has an automatic legal interest in one another’s lives.
Financial dependents: If someone relies on another for significant financial support, they may have a valid insurable interest.
Business partners or employers: Companies can take out “key person” policies on executives or individuals whose absence would create a financial loss.
Legal guardians and caregivers: In some cases, courts may find insurable interest where one person is legally or financially responsible for another.
Life insurance companies that typically enforce these requirements include AARP, Primerica, Transamerica, Pacific Life, and many more. Our legal team knows the documentation and legal arguments required to establish legitimate insurable interest when it’s questioned.
Real Cases of Denied Claims Due to Lack of Insurable Interest
Business Partnership Breakdown
Two individuals formed a startup and took out life insurance policies on each other to protect their investment. A few years later, the business dissolved and the partners went their separate ways. When one of them passed away, the other filed a claim—but the insurer denied it. They argued that because the financial relationship had ended, there was no longer an active insurable interest. We challenged this by demonstrating that the insurable interest existed at the time the policy was issued, and successfully recovered the benefit.
Post-Divorce Dispute Over Valid Policy
A husband purchased a life insurance policy on his wife during their marriage, citing financial dependency. Years later, after their divorce, the wife passed away. The ex-husband filed a claim, but the insurer denied it, arguing that under the state’s automatic revocation statute, the beneficiary designation was revoked when the divorce finalized. We reviewed the state law and the policy’s language and argued that the statute did not apply because the insured had not designated a new beneficiary post-divorce. The insurer ultimately reversed its decision after our legal briefing.
Fraudulent Policy Acquisition
In a more disturbing case, an individual forged paperwork and used falsified identity documents to take out a policy on an unrelated elderly person. After the person died, the fraudulent policyholder attempted to claim the benefit. The insurer, after launching a fraud investigation, denied the claim for lack of insurable interest and forgery. Our firm frequently works with families in these types of fraud investigations—often when the rightful beneficiary is different from the one attempting to collect.
Key Employee Leaves Company
A corporation had taken out a key person life insurance policy on a high-level employee. After several years, the employee resigned. The company did not cancel the policy. When the former employee died unexpectedly, the company attempted to collect the benefit. The insurer denied the claim, asserting that the employer no longer had a financial dependency on the deceased. This kind of case requires detailed analysis of employment records and policy terms. We’ve successfully handled similar matters, ensuring valid claims are honored.
Why Insurers Deny Claims on Insurable Interest Grounds
When life insurance companies deny claims for lack of insurable interest, their reasons typically fall into one of the following categories:
The relationship between the policyholder and the insured no longer exists
The policy was initiated fraudulently or under false pretenses
The beneficiary was not disclosed properly or had no legitimate connection
The policy violated state laws prohibiting “stranger-originated life insurance” (STOLI)
Our lawyers dissect these arguments and present legal, financial, and factual evidence to prove the insurable interest existed at the right time. We often show that the insurer's denial is based on misinterpretation of the law or facts. If you have Mississippi life insurance claim issues contact us.
FAQ About Insurable Interest and Life Insurance Denials
What is insurable interest?
It’s the legal requirement that a person purchasing a life insurance policy has a valid reason—financial or emotional—to want the insured to remain alive.
Does insurable interest need to exist at the time of death?
No. It must exist at the time the policy is purchased. If it disappears later (e.g., through divorce or business dissolution), the policy may still remain valid.
Can a policy be valid after divorce?
Yes—unless the policy is affected by an automatic revocation statute in your state. Some states remove an ex-spouse as a beneficiary automatically after divorce.
Can a stranger buy a policy on someone else?
No. A person cannot take out a life insurance policy on someone with whom they have no legitimate relationship. Doing so can be considered insurance fraud.
What happens if the employer-employee relationship ends?
If a key person policy is not canceled, the insurer may still pay it out, unless the lack of ongoing insurable interest is used to contest the claim.
Can a life insurance claim be denied even if premiums were paid for years?
Yes. If the insurer later discovers that insurable interest was lacking at the time of purchase, they may try to void the policy retroactively.
What if the beneficiary forged or misrepresented their relationship to the insured?
This constitutes fraud. Insurers will deny claims and may pursue criminal charges in such cases. We also defend rightful beneficiaries when fraud is alleged in error.
How do I prove insurable interest existed?
Our lawyers gather evidence such as financial records, legal documents, affidavits, and communications to establish the relationship and dependency at the time the policy was issued.
Do all life insurance companies require proof of insurable interest?
Yes. Companies such as John Hancock, Protective Life, Penn Mutual, Transamerica, and many others require this as a core part of the underwriting process.
Can denied claims for insurable interest be appealed?
Absolutely. Our law firm specializes in appealing denied claims based on lack of insurable interest, and we have successfully recovered benefits for many families.