Question: Why does an insurance company require an insurable interest before I buy a life insurance policy?
Answer :
In order for you to buy a life insurance policy on someone else's life, you must have an insurable interest in that person. That is, you must expect to suffer some financial loss in the event of that person's death. If you have a blood or marital relationship with someone, you automatically have an insurable interest. If not, there must be some other reason, such as the person is your business partner, is an employee, or owes you money. You must have an insurable interest in that person only at the time you take out the policy, not at the time of that person's death. The reason our laws demand that insurance companies require an insurable interest for life insurance policies is to prevent individuals from gambling on the mortality of another.