Insurable interest on a life term insurance policy
Any time that a life term insurance policy is taken out with multiple proposers or different proposers to lives assured it will be a requirement to prove the insurable interest between the parties to the insurance company before any insurance terms are issued. Insurable interest is much like it sounds, the reason that these parties are taking out insurance in this way, their interest in each other. There needs to be a bona fide reason for somebody benefiting from the death of somebody else. Depending on such a relationship the amount of interest can be under scrutiny and there are limits. For instance if Mr and Mrs Smith are married and take out a joint life term insurance policy then it is obvious what their interest is in insuring each others life, the survivor will need money to replace lost income, raise the kids, pay off the mortgage to name a few common examples. The insurable interest of family members is assumed to be emotional as well as financial. If two parties can prove that the continued health of the other is financially benefiting them then they can make an application for a life term insurance policy, such as business partners or a business taking out cover on a key member of staff. How much interest may need to be proven, for instance business partners who own a mediocre business cannot take multi-million pound life term insurance policies out on each other as they cannot justify such a level of cover.
