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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance

Which of the following best describes 'insurable interest' in a life insurance contract?

Insurable interest means the proposer would suffer a financial loss, or has a legally recognised relationship, with the life assured such that the person's death would hurt them. In life insurance it must exist when the policy is taken, otherwise the contract is not enforceable.

  1. AThe insured must expect to profit from the death of the life assured
  2. BThe proposer must have a financial or recognised relationship such that they would suffer loss on the life assured's deathCorrect
  3. CThe insurer must hold a financial stake in the life assured
  4. DThe nominee must be a blood relative of the life assured

Explanation

Insurable interest means the proposer stands to lose financially or emotionally from the death of the life assured, and it must exist when the policy is taken in life insurance. It does not mean expecting profit from the death. The insurer holds no stake, and a nominee need not be a blood relative.

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