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

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

Insurable interest means the proposer must have a financial or legally recognised relationship with the life insured, so that the person would suffer loss from that life's death. In life insurance it must exist when the policy is taken, preventing the contract from becoming a wager.

  1. AThe insured must have a financial or legally recognised relationship to the life insured when the policy is takenCorrect
  2. BThe insurer must have an interest in the investment returns of the policyholder
  3. CThe insured must be at least 18 years old at the time of claim
  4. DThe premium must be paid in a single lump sum

Explanation

Insurable interest requires that the proposer stands to suffer financial loss or has a recognised relationship with the life insured, so the policy is not a wager. In life insurance it must exist at inception. Age and premium mode are unrelated to it.

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