Insurable Interest

Insurable interest is the legal requirement that a person purchasing life insurance must have a legitimate financial or emotional stake in the continued life of the insured at the time the policy is issued. Without insurable interest, a policy could incentivize harm to the insured. For individuals, insurable interest exists automatically for one's own life, between spouses, parents and children, and between business partners. For third parties such as employers (key person) or creditors, the financial relationship must be documented. Insurable interest must exist at policy inception but — unlike property insurance — generally does not need to exist at the time of claim.