![]() “Insurance companies use insurable interest as their protection to prevent fraud and intentional illegal acts,” Taylor says. One of the main benefits of life insurance is to provide financial protection for survivors who may suffer if the insured dies. Unless there is more to the story and your neighbor can prove your death would cause them financial hardship, they do not have an insurable interest and will not be able to buy a policy on your life, with or without your consent. Your neighbor wants to take out a life insurance policy on you so that when you die they will receive the payout. Here’s a scenario in which insurable interest cannot be established without additional proof. Related: The right life insurance for a business partner’s death An example that does not demonstrate insurable interest Each business partner can purchase life insurance on the other so that they can fund the ongoing operation of the business if one partner dies. Therefore, you both have an insurable interest in each other and can purchase life insurance for the other person.Ģ. If either of you were to die, it could create financial hardship for the surviving spouse and children. You and your spouse have young children and own a home. Taylor provides two scenarios in which insurable interest can be established.ġ. However, someone outside of your family, such as a business partner, would need to show additional documentation and obtain your consent before purchasing a policy on you. Taylor says that immediate family members such as a spouse, children or even aging parents would usually automatically qualify since they may rely on you financially. Additionally, you must have consent from someone before you purchase life insurance on them, even if you clearly have an insurable interest. Without an insurable interest, a person cannot purchase a life insurance policy on another person. ”It means that a person would encounter financial hardship if the insured died,” she explains. ![]() An insurable interest is an important and required component when someone is buying a life insurance policy, says Tanya Taylor, a CPA and founder and CEO of Grow Your Wealth.
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