Insurable interest is a legal principle that requires the insured to have an interest in the life of the insured person. This means that the insured must stand to suffer a financial or emotional loss if the insured individual dies. The requirement of insurable interest is designed to prevent individuals from taking out policies on people they have no legitimate connection with, thus reducing the potential for fraud or moral hazard. Many companies require an insurable interest including: John Hancock; Protective Life; Equitable; Mutual of Omaha; and more. Insurable interest must exist at the time the policy is purchased, but it does not need to be maintained throughout the policy’s duration. This means that if a spouse purchases a life insurance policy on their partner and they later divorce, the policy may remain valid in states with no automatic revocation clause. However, a stranger or casual acquaintance cannot legally obtain a policy on someone with whom they have no real connection. Other life insurance companies that require an insurable interest include: Penn Mutual; Globe; Mass Mutual; Pru Life; Corebridge; and more.
There are several situations where insurable interest is clearly recognized by law and insurance companies. Spousal and Family Relationships: Spouses, parents, and children often have an automatic insurable interest in one another. Business Relationships:Employers and business partners can also have an insurable interest in key employees or co-owners. Financial Dependency: Individuals who depend on another person for financial support may have insurable interest. Companies that have an insurable interest requirement include: AARP; Primerica; Transamerica; Pacific Life; and more.
Lack of insurable interest is a major factor that can result in denied life insurance claim, but it is not the only reason. Here are several scenarios where claims have been denied due to insurable interest issues and other contributing factors. In one case, two people started a business together, and one partner took out a life insurance policy on the other. The business dissolved and they no longer had a financial connection, the surviving partner to filed a claim upon the other’s death, but the insurer determined that the financial dependency no longer existed at the time of death. In another case, a husband purchased a life insurance policy on his wife while they were married, citing financial dependency. However, they later divorced, and the wife no longer had any financial obligations toward her ex-husband. The insurer claimed he no longer had a legitimate financial stake in her life. While some policies remain valid post-divorce, others can be contested depending on automatic revocation statutes. In a recent case, a person forged documents to purchase a life insurance policy on an elderly person unrelated to them. Upon the person's death, the person tried to collect the benefits, but the insurance company investigated and found no legitimate insurable interest. Another recent case involved an employer who took out a “key person” or “ key man” life insurance policy on a highly valuable employee. However, the employee later left the company, and the employer tried to collect the policy benefits, but the insurer alleged that there was no longer a valid financial connection between the company and the deceased. the claim could be denied.
Our life insurance lawyers fight all denied life insurance claims due to lack of insurable interest.