Life & Health Insurance Practice Exam

What indicates the presence of insurable interest in a life insurance contract?

1. Friendship

2. Marriage

3. Employee-employer relationship

4. Business competition

The correct answer is: Marriage

In the context of life insurance contracts, insurable interest refers to a policyholder's legitimate interest in the continued life of the insured. This concept is crucial because it prevents insurance from being used as a gambling mechanism or an incentive for harm. Marriage is a classic example of a relationship where insurable interest is typically recognized. When individuals are married, there is a mutual expectation of support and a genuine emotional and financial interest in each other's well-being. This emotional bond and shared financial resources create a substantial basis for the insurable interest necessary for life insurance. In contrast, friendship, an employee-employer relationship, and business competition may not always establish an insurable interest in the same unequivocal way that marriage does. While one might argue that close friends could have an insurable interest, the lack of a direct financial dependence or emotional bond typically seen in marital relationships often weakens this claim. An employee-employer relationship may imply some level of financial interest, primarily in the context of key personnel, but it generally does not invoke the same depth of insurable interest as marriage does. Business competition could suggest some interest, but it typically lacks the personal stake needed for insurable interest in life coverage. Therefore, marriage stands out as a clear and accepted