What Is Insurable Interest Life Insurance?
Reader’s Question:
Can I buy my friend here in Oklahoma a life insurance policy for her?
Graham
Lawton, OK
Unfortunately you might not, unless maybe you are able to prove that you might suffer financial loss or difficulty in the event your friend there in Oklahoma suddenly passes away. In the life insurance industry this is known as “Insurable Interest”. The only parties that are allowed to purchase life insurance for someone else are spouses, family members or relatives, business partners or any individual that will suffer financially upon the death of the insured are the ones that have “Insurable Interest” and are allowed to purchase the said life insurance party for the person they wish to give coverage.
Insurable Interest actually stems on the idea that strangers may commit murder to get death benefits or death proceeds if they are allowed to insure just anyone they wish. That would be an unacceptable amount of risk for both the individual being insured as well as towards the business of the life insurance provider itself.
You might also ask who the policy owner is if a person with sufficient “Insurable Interest” is allowed to buy life insurance coverage for someone else. The policy owner would be the one who bought the insurance (and the one who will be paying it) but the insured would, obviously, be the one who is protected under the coverage. This is important to understand since there are life insurance providers who only allows the policy holder to take money out of a cash-value life insurance policy.
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