General Rules of Insurable Interest in Life Insurance

1. Time of Insurable Interest

The insurable interest must exist at the time of proposal. Policy, without insurable interest, will be wager. It is not essential that the insurable interest must be present at the time of claim.

2. Services

Except the services of wife, services of other relatives will not essentially form insurable interest.

There must be financial relationship between the proposer and the life assured. In other words, the services performed by the son without dependence of his father, will not constitute insurable interest of the father in the life of his son. Vice-versa is not essential for forming insurable interest.

3. Insurable Interest must be valuable

In business relationship the value or extent of the insurable must be determined to avoid wager contract of the additional insurance. Insurance is limited only up to the amount of insurable interest.

4. Insurable interest should be valid

Insurable interest should not be against public policy and it should be recognized by law. Therefore, the consent of life assured is very essential before the policy can be issued.

5. The legal responsibility may be basis of insurable interest

Since the person will suffer financially up to the extent of responsibility, the proposal has insurable interest to that extent. For instance, a person will be under legal responsibility to expense at the funeral of his wife and children, he can purchase insurance in their lives up to that extent.

6. Insurable interest must be definite

The insurable interest must be present definitely at the time of proposal. Mere expectation of gain or support will not constitute insurable interest.

7. Legal Consequence

The insurable interest must be there to form legal and valid insurance contract. Without insurable interest, it would be null and void.