Risk Management Temple Exam 2 Practice

Insurable interest is the legitimate financial stake someone has in the continued life of another. In life insurance, this stake is required for the party who applies for the policy and for the person who would benefit from the policy’s payout. The policyowner must have an insurable interest in the insured’s life because they stand to suffer a financial loss if the insured dies. If a beneficiary is named, that beneficiary should also have an insurable interest in the insured’s life so the payout serves a genuine financial need rather than a mere wager on someone’s death. The insurer itself is the underwriter of the risk and does not need to have insurable interest in the insured’s life. Therefore, the relationship that must have insurable interest is both the owner and the beneficiary.