{"id":1233,"date":"2012-05-18T13:25:13","date_gmt":"2012-05-18T20:25:13","guid":{"rendered":"http:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/?p=1233"},"modified":"2022-03-08T08:22:02","modified_gmt":"2022-03-08T15:22:02","slug":"insurable-interest","status":"publish","type":"post","link":"https:\/\/www.nationalonlineinsuranceschool.com\/insurance-license-blog\/2012\/05\/insurable-interest\/","title":{"rendered":"Insurable Interest"},"content":{"rendered":"

The Purpose of Insurance<\/h4>\n

An important topic insurance training<\/a> covers is the function of an insurance company and the legal construction of an insurance policy.\u00a0 Insurance is a form of \u2018risk management\u2019 used to protect the financial well-being of an individual, company, or other entity in the event of unexpected financial loss.\u00a0 While health, life, and disability insurance provides a financial safety net against the unexpected financial loss associated with illness, disability, or death, the goal of an insurance company is to maintain profitability for it\u2019s shareholders.<\/p>\n

\"\"Risk Protection<\/h4>\n

Some small risks can be managed with personal or company finances; however, larger, more catastrophic<\/em> expenses are best handled by transferring the risk to an insurance company.\u00a0 The insurer will assume the cost resulting from the insured\u2019s risks, and in exchange, the insurer charges a monthly premium (monthly payment) to the insured.\u00a0 This is accomplished by purchasing an \u2018insurance policy.\u2019<\/p>\n

An insurance policy<\/strong> is a binding agreement designed to protect against financial loss, and as a legal contract, it reflects the insurer\u2019s responsibilities of covering such loss.<\/p>\n

A life insurance policy is designed to pay a stated sum to the designated policy beneficiary\u00a0in the unlikely event that the insured dies within the policy\u2019s coverage period.\u00a0 A health insurance policy is designed to indemnify an insured for medical treatment in the event of an accident, illness, or disease.\u00a0 And a disability insurance policy is designed to indemnify an insured by replacing lost income during a time of disability.\u00a0 In all cases, Indemnity<\/strong> refers to the insurance proceeds that are paid to the insured or beneficiary in the event of a loss.\u00a0 <\/strong><\/p>\n

Insurable Interest<\/h4>\n

The legality of any insurance policy is based on the concept of insurable interest<\/strong>.\u00a0 In other words, in order to obtain insurance, an \u2018interest\u2019 must exist between two parties where one party has the potential to suffer a loss in the event that a particular outcome occurs (which was covered by the insurance policy).<\/p>\n

Insurable interest occurs between two parties that, upon the loss of one party, the remaining party will have suffered some sort of loss.<\/p>\n

Examples of Insurable Interest<\/strong><\/p>\n

    \n
  • The loss of a loved one, such as a blood relative (spouse, parent, grandparent, children, grandchildren)<\/li>\n
  • The loss of a business partnership that would result in financial hardship if a key member were to be removed from the business<\/li>\n<\/ul>\n

    In contrast to insurable interests, insurance cannot<\/em> be purchased on strangers, friends, associates of no financial significance, or the like where the potential for gain, instead of loss, were to occur.<\/p>\n

    When speaking about life insurance, insurable interest must exist at the time of application, but is not required to still exist at the time of an insured\u2019s death.<\/p>\n

    This determines who may purchase a policy, but does not affect who will benefit from the policy. For instance, if a married couple purchased life insurance on each other and at a later date they divorced, they would still continue to serve as each other’s beneficiary if one were to die, and would still be eligible to collect the contract\u2019s death benefit.<\/p>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

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