What is Insurable Interest? – Life Insurance Quotes
For any insurance you buy, for instance car insurance, you have an insurable interest in the car. With life insurance, everyone has an insurable interest in their own lives as well as those of their family.
People buy life insurance for the purpose of protecting loved ones from financial loss. If the insured person dies, the person with the life insurance policy names their beneficiaries. These beneficiaries will receive the insurance policy proceeds when the person dies.
Insurable Interest must Exist on Application
When you apply for life insurance, you need to have an insurable interest in the insured person. To insure someone’s life, an applicant for life insurance cover must have an interest in the insured being alive. Without such interest, some would anticipate buying a life insurance just to collect the death benefit by killing the insured.
Insurable interest was introduced in England in 1774. England was the first country to pass this legislation. It prevents anyone from taking out a life insurance policy unless they can prove insurable interest. Insurable interest refers to someone taking out on another person’s life. That is, if the person getting the insurance values the life of the insured more than the policy amount.
Insurable Interest in Aging Parents Perfectly Legitimate
Think of the passing of elderly parents. If they don’t have life cover, it will possibly leave you with quite a bit of financial burden. You will have to organise a funeral as well as bera other costs. This means there is insurable interest on your part for your elderly parents.
Legal guidelines exist which establish the kinds of family relationships for which an insurable interest exists. When you buy a life insurance policy on somebody else, it must meet the insurable interest requirement. This means it is better for you and in your best interests that the person remain alive, whether for emotional or monetary reasons.
Insurable interest is assumed when buying life insurance on one of your immediate family members . However, insuring the lives of extended family members such as aunts and uncles doesn’t automatically create an insurable interest.
Is Your Life Insurance Null and Void?
In South Africa a life insurance policy is regarded as null and void if it is believed that you don’t have a legitimate interest in the life insured. If however, you do have a legitimate interest in the life of a certain person, you can’t recover more than the value of your interest from the policy.
You need to prove such interest when taking out the life insurance policy. A marriage partner will have insurable interest in the life of their partner, and may decide to take out an insurance policy on their partner’s life. Even if the marriage comes to an end, as long as the policy owners conintues to pay the premium, the spouse will be able to collect the benefits as stipulated in the policy.
The bottom line is that the person who receives economic benefits from a living, well person has an interest in them carrying on their life.
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All info was correct at time of publishing