What is Insurable Interest?

Instructor: Ian Lord

Ian has an MBA and is a real estate investor, former health professions educator, and Air Force veteran.

Can I buy a life insurance policy on my neighbor so that I can collect the benefit if he dies? Let's investigate the insurance concept of insurable interest to find out. We will look at who is eligible to purchase insurance on another person.

Insurable Interest

Ned is an insurance salesman and is often approached by a spouse who wants to purchase a life insurance policy on his or her partner. Let's consider Jane, who wants to know if she can buy a policy to cover her husband, Fred, since he has been slow to do it himself. This example will illustrate the concept of insurable interest. Let's see how this concept works in the insurance industry.


Simply put, insurable interest means that the beneficiary, or person benefitting from the proceeds of the insurance policy, has a financial tie to the insured person. Since Jane is married to Fred she benefits from his income, and would be affected financially if he died. Without an insurable interest, an insurance policy is considered void and illegal.

An insurance company that issues a life insurance policy will want to make sure that the person purchasing the policy has a continued benefit and interest in the insured person continuing to live. For example, it would be unwise for the company to write a policy that would incentivize the death of a spouse. A balance must be achieved between protecting against the financial loss associated with a person's death, and creating the moral dilemma of a financial gain from that person's death.


Ned can determine if a potential buyer meets the eligibility standard for an insurable interest by establishing a financial or dependency relationship between the buyer and the insured person. Immediate family, such as spouses, or adult children who depend on their parent to cover education costs, are common examples.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account