Insurable Interest In Life Insurance

If you were to suffer financial or emotional loss if the insured individual passed away — you have insurable interest. Insurable interest allows you to buy a life insurance policy for someone else, as long as they consent to coverage. If you are purchasing a life insurance policy for yourself, you automatically have insurable interest. Learning how to prove insurable interest and when you can likely qualify to purchase a life insurance policy for a loved one can make the process easier to understand.

Written by
Lindsey Crossmier
Lindsey Crossmier
Financial Writer
Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.
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Lamia Chowdhury
Lamia Chowdhury
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Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.
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Eric Estevez
Eric Estevez
Owner of HLC Insurance Broker, LLC
Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.
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Published: September 30, 2022
Updated: May 23, 2023
5 min read time
This page features 2 Cited Research Articles

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What is Insurable Interest in Life Insurance?

To purchase any life insurance policy, you must have insurable interest. To have insurable interest, you must rely on the services or finances of the insured individual. If the insured individual were to pass away, you would experience hardship or have to cover lost funds.

Insurable Interest Definition

An individual has an insurable interest of another person if such individual has an expectation of advantages through the continued life, health, and safety of that other person and consequent substantial loss by reason of the death, injury, or disability of that other person.

Source: The Florida Legislature

For example, if your wife covers most of the family’s bills, you will experience financial loss if she were to suddenly pass away. Therefore, you have insurable interest.

If you don’t have a relationship with the insured or wouldn’t suffer any emotional or financial losses if the insured passed away — you do not have insurable interest.

Examples of When Insurable Interest Exists

If you are purchasing a life insurance policy for yourself, you automatically have insurable interest. If you are purchasing life insurance for someone else, there are common scenarios when you likely have insurable interest.

Relationships When Insurable Interest Exists

Spouse: If you watch your children while your spouse works, you both have an insurable interest with one another. If you were to pass away, your spouse would have to hire a nanny to care for the children. If your spouse passed away, you’d need to cover their lost salary.
Family Member: If a close family member provides services or financial aid to you, such as a sister caring for you as you recover from cancer — they would have insurable interest.
Financially dependent ex-spouse: Even if you’re divorced, if you rely on funds from your ex-spouse, you have insurable interest. For example, if your wife pays child support, you will suffer financial losses if she were to suddenly pass away.
Employer or business partner: If you have a business partner, you could risk financial and labor loss if they were to pass away. In some cases, you can have insurable interest. According to the Florida Legislature, a business entity related to insurable interest includes but is not limited to a joint venture, partnership, corporation, limited liability company, and business trust.

When does insurable interest not exist?

Insurable interest does not exist between individuals with no financial or emotional dependence. You do not have an insurable interest with a stranger, or even some family members.

Just because you are blood related, doesn’t mean you have insurable interest. There must be a dependency or loss if the insured were to pass away.

For insurable interest to exist in a business relationship, there must be evidence of financial ties between the policyholder and the insured. Simply being someone’s employer or partner doesn’t mean you automatically have insurable interest.

Comparing When Insurable Interest Does and Doesn’t Exist

Scenario 1 You are Janet’s sister, but you don’t ever see her.	You do not have insurable interest.
Scenario 2 You are Amy’s wife. You live together.	You do have insurable interest.
Scenario 3 Ryan is your employer. You both work at Target.	You do not have insurable interest.
Scenario 4 David is your business partner. You just opened a law firm together.	You do have insurable interest.

Proving Insurable Interest

To prove insurable interest, you can gather a written statement or declaration from the person you’re trying to get insured. The life insurance company may also request to speak with the individual or ask for further documentation.

For example, if your ex-spouse covers the majority of the bills, having a bank statement would help prove your insurable interest.

You’ll need ample information to be able to take out a life insurance policy on anyone, even if that person is a family member. You’ll need a signed consent form, along with their medical history. Having information ready with written consent will help prove insurable interest.

Why Insurable Interest Is Important

If insurable interest wasn’t required with life insurance policies, anyone could take out a life insurance policy on anyone. People could be scammed or victimized.

For example, one could take out life insurance policies on a sick older adult in hopes of cashing out a death benefit.

One could even be incentivized to take a life insurance policy out on a neighbor or stranger, only to hurt them in hopes of receiving a benefit.

Generally, if insurable interest did not exist, good people could be tempted to abuse life insurance resources and endanger others.

Frequently Asked Questions About Insurable Interest

When must insurable interest exist in a life insurance policy?

Insurable interest always exists in a life insurance policy, whether you are purchasing a policy for yourself or someone else. You cannot get a life insurance policy without insurable interest.

At what time must a policy owner have insurable interest?

There must be insurable interest at the time the policy is purchased. For example, if you’re married, you’ll likely always have an insurable interest. But if the person you’re looking to insure is your business partner, you will only have insurable interest while you have financial obligations to one another.

Who has insurable interest in life insurance?

Whoever will face financial or emotional hardship if the insured passes away is the individual with insurable interest. Having insurable interest allows you to purchase a life insurance policy.

Last Modified: May 23, 2023

Lindsey Crossmier Financial Writer

Lindsey Crossmier joined the RetireGuide team in 2022 as a writer to promote long-lasting financial literacy. She leverages her creative writing background, editorial experience and financial education from Yale to write retirement-focused financial content for those ready to prepare for their futures. Making complex information simple and accessible for all is her specialty.

Special focus on content about life insurance, Social Security, Medicare and certificates of deposits (CDs)
Research-based data drives her work
Bachelor’s degree in English from the University of Central Florida

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