The document discusses the requirement of insurable interest for life insurance policies. It defines insurable interest as existing when a person would financially or emotionally suffer from the death of another individual. Insurable interest is required for life insurance policies to be valid and prevent gambling on human lives. Common examples of insurable interest include immediate family members and business relationships where financial dependency exists. The document outlines when insurable interest is needed and how it can be proven to insurance companies. It also provides examples from case law related to insurable interest requirements.

1. Requirement of insurable interest
for life insurance
PRESENTED BY:
SHARFA I KHAN
UTKARSH SHUKLA
TANYA SINGH
4TH YEAR B.COM LLB
PRESIDENCY UNIVERSITY

2. Index
 What is life insurance?
 Benefits of life insurance
 Insurable interest
 When is Insurable Interest required?
 Existence of insurable interest in life insurance.
 How to prove insurance interest.
 Case laws
 Conclusion

3. What is life insurance?
 It is a contract in which the Insurer, in consideration of a certain premium, either in a lump
sum or in any other periodical payments, in return agrees to pay to the assured, or to the
person for whose benefit the policy is taken, a stated sum of money on the happening of a
particular event contingent on the duration of human life.
 Life Insurance is an arrangement between the Insurance company/Government which
guarantees of compensation for loss of life in return for payment of a specified premium. In
Life Insurance, the beneficiary whose name has been mentioned in the contract receives the
specified sum, from the insurer in case of happening of the event i.e. Loss of Life.

4. Essential of life insurance
 It is a contract relating to human life.
 The contract provides for payment of lump sum money.
 The amount is paid at the expiration of a certain period or on death of a person.

5. Definition
 In India, Life Insurance business is defined under Section 2 (11) of Insurance Act, 1938, which reads “ Life
Insurance business” means the business of effecting contracts of insurance upon human life, including any
contract whereby the payment of money is assured on death (except death by accident only) or the
happening of any contingency dependent upon human life and any contract which is subject to payment
of premium for a term dependent on human life and shall be deemed to include the granting of Disability
and double or triple indemnity accident benefits, if so provided in the contract of insurance Annuities
upon human life and Superannuation allowances and annuities payable out of any fund applicable solely
to the relief and maintenance of persons engaged or who have been engaged in any particular profession,
trade or employment or of the dependents of such persons.
 The insurance contracts, which deal with disability, accidental death alone, sickness etc. are excluded from
the purview of life insurance. However, life insurance contracts can have benefits payable on the
accidental death or disability of the persons insured as additional benefits on the basic life insurance
contracts.

6. Benefits of Life Insurance
Risk Coverage: Insurance provides risk coverage to the insured family in form of monetary compensation in lieu of
premium paid.
Difference plans for different uses: Insurance companies offer a different type of plan to the insured depending on
his need for insurance. More benefits come with the more premium.
Cover for Health Expenses: These policies also cover hospitalization expenses and critical illness treatment.
Promotes Savings/ Helps in Wealth creation: Insurance policies also come with the saving plan i.e. they invest your
money in profitable ventures.
Guaranteed Income: Insurance policies come with the guaranteed sum assured amount which is payable on
happening of the event.
Loan Facility: Insurance companies provide the option to the insured that they can borrow a certain sum of amount.
This option is available on selected policies only.
Tax Benefits: Insurance premium is tax deductible under section 80C of the income tax Act, 1961.

7. What is insurable interest in life insurance?
In life insurance, a person has an insurable interest in another person when the death of that person would
cause a financial, emotional or another type of loss. Insurable interest can be present in many situations like
marriage, but it is evaluated by the insurance company during the application for the policy and before
payment of the death benefit.
What is insurable interest?
You have an insurable interest in something if you would suffer some kind of loss if that person or property
were to be lost or damaged. Furthermore, you would benefit financially from that person or property's
continued existence. For this reason, it would make sense for you to purchase insurance on it so you can
continue to receive those benefits.

8. What is insurable interest in life insurance?
You can't take a life insurance policy out on just anyone. In order to purchase a policy, insurable interest must
exist. In the case of a life insurance policy, the owner of the policy must always have an insurable interest in
the life of the insured. Also, if the owner of the policy is not the beneficiary then the beneficiary named in the
contract would also need an insurable interest in the insured person.
Insurable interest means an individual receives a financial or other type of benefit from the continued
existence of the person insured. Thus, if the person insured were to pass away, the surviving person would
experience a financial loss or other hardship.

9. When it comes to life insurance, family members (by blood relation or marriage) are usually considered to
constitute interest (considered they are immediate). Some commonly accepted examples are:
 Husband or wife (including former spouses)
 Brothers/sisters
 Engaged couples
 Children and grandchildren
 Other financial dependents
 Aging parents
 Special needs adult children

10.  Certain other kinds of relatives like cousins, nieces, etc. are not automatically assumed to be eligible,
however life insurance companies are typically understanding of unusual circumstances. As long as you
can prove financial dependency or hardship, you shouldn’t have any trouble with insurance laws.
 In certain cases, businesses and business partners can also claim insurable interest. For instance, a
business can insure their CEO, an estate can insure an individual in whom they have a vested interest,
and you can insure an individual whose debt obligations will net you a financial loss upon their passing.
However it’s important to note: insuring another adult requires their consent, and you cannot get a life
insurance policy without the permission of the insured

11. When is Insurable Interest required?
Insurance interest is a basic requirement needed to make any life insurance contract valid. While this was not
always the case, modern law has evolved to create protections for the insurance industry against persons
betting on the lives of others. Insurance laws are strict and any life insurance policy or contract considered
lacking in insurable interest are both invalid and illegal. However, this shouldn’t be a problem for most
people, as the insured are typically their loved ones.
It’s worth noting that you are always considered to have an interest in yourself, so you’re always allowed to
buy your own policy and name whatever beneficiaries you wish. However, in practice most insurance
companies exercise the same level discretion in determining insurable interest for beneficiaries as they do
policyholders, and will reject those they don’t consider eligible.

12.  Proving insurable interest typically isn’t required for children and spouses, as their interest is apparent. For
other situations, you need to submit a case to demonstrate the financial interest of the beneficiary. Examples
include if you’re the last remaining relative of an individual or plan to cover an individual’s funeral costs
that may be expensive.
 It’s also worth noting interest is only required at the time the policy is taken out. If you name a spouse as a
beneficiary of your policy and then divorce 5 years later, they are still recipients of your death benefit until
you change your beneficiaries.

13. When does insurable interest exist in a life insurance policy?
You are always considered to have an insurable interest in your own life and, therefore, you can purchase life
insurance on yourself. In this case, you would be the policyholder and the insured. Furthermore, the
beneficiaries of the policy would not need to prove an insurable interest in you, as it is presumed that you
would name beneficiaries who want you to live a long and healthy life.
Insurable interest also extends to your direct dependents and relationships of blood and marriage. This can
include:
Husbands and wives
Children (including adoption)
Grandparents and grandchildren
Brothers and sisters

14. Above are all examples of direct blood relationships where insurable interest is always present. Insurable
interest can also exist in business and creditor-debtor relationships.
Business relationships create an insurable interest if you have a financial dependency on the existence of the
insured.
For example, say you start a business and hire Alex to run it. In this case, you would have an insurable interest
in the life of Alex, because if he were to pass away you would experience a loss of profits for your business.
This is known as business life insurance and is a common practice.

15.  Often, corporations take out key man life insurance on their officers, while business partners can purchase
life insurance contracts on each other.
 Creditors and credit companies are allowed to take out life insurance policies on their debtors. In this case,
with consent from the debtor, the company could take out a life insurance policy equal to the amount owed.

16. When does insurable interest not exist?
Insurable interest generally is present in blood relationship but would not exist in the following scenarios unless there
is proof of financial dependence:
 Aunts and uncles
 Cousins
 Nieces and nephews
 Stepchildren and stepparents
Say, for example, you have an elderly neighbor who is 90 years old. You consider taking out a life insurance policy on
your neighbor as she does not have many more years to live. This would not be a situation where an insurable interest
would be present, as you would not suffer a financial loss from the death of your neighbor.

17. How to prove insurable interest?
 In life insurance, proof of insurable interest is required during the application and purchase of a policy.
Life insurance is a tool used to make you whole again following the financial loss of someone. In theory,
some people would be tempted to purchase a life insurance policy on a random person to receive profits
if that person were to die. This is why the principle of insurable interest was created, to ensure that life
insurance was used properly.
 Insurable interest is a nonnegotiable aspect of life insurance policies.Without an insurable interest, the
policy can be void or denied. It is the duty of the policy owner to prove that they have an insurable
interest in the insured party. Proof must be presented at application as well as at the end of the policy
when the insured has passed away.

18.  To confirm that an insurable interest is present, a life insurance company will usually talk to the policy
owner, beneficiary and insured. They will investigate the relationship to the proposed insured and evaluate
if there is an insurable interest. If an insurable interest is not found, the policy would be denied at the
application or the death benefit would not be paid out.

19. CASE LAWS:-
 Godsall v. Boldero, that if a creditor affects a policy of insurance upon the life of
his debtor for greater amount than due, then he will not be able to recover any
greater sum than the amount or value of his interest.
 Griffith v. Flemming, Griffith and his wife each signed a proposal from for a joint
life policy on their life and both contributed towards the premium. After the
policy was taken, the wife committed suicide and the husband claimed the sum
assured. The insurer alleged that at the time of taking the policy the husband had
no insurable interest in his wife's life as required by the Life Assurance Act, 1774.

20.  Liberty National Life Insurance v. Weldon, the aunt of the of a two year old child
who was a nurse by profession, managed 3 life insurance policies by different 3
companies on the life of the child. One day she mixed some poisonous thing into
the milk and by that milk child was died. And the lady claimed a huge amount
from three companies. The father filed a case against all the insurance companies
that without knowing the fact that whether she had any insurable interest in the
life of child they issued the life insurance policies.In this case Court held that the
aunt has no insurable interest in the life of child therefore the companies were not
liable but the companies are liable to pay compensation to father of the child. In
the life insurance policy persons having relationship by marriage, blood or
adoption have been recognized as having insurable interest.

21. CONCLUSION-
 To be legally enforceable, all insurance contracts must be supported by an
insurable interest. Insurance contracts must be supported by an insurable interest
for the following reasons. Purpose of Insurable Interest.
 To prevent gambling: insurable interest is necessary to prevent gambling. If
insurable interest is not required, the contract would be gambling contract and
would be against public interest. To reduce moral hazard
 So after going through the project we find that there can be not valid insurance
contract without insurable interest and hence the hypothesis is proved and we
can say that insurable interest is essential for making any insurance agreement a
legally binding insurance contract.