CARD Q016
A business purchases life insurance on a key employee. When must the required insurable interest generally exist?
- At every premium anniversary
- Only when a beneficiary files a claim
- When the life policy is established
- Only when the employee dies
When the life policy is established
For life insurance, insurable interest is generally required at inception. It prevents wagering on a stranger’s life.
Why each choice is right or wrong
A. At every premium anniversary
Incorrect. Life-policy insurable interest is not generally retested at every premium anniversary.
B. Only when a beneficiary files a claim
Incorrect. Claim filing is too late for the general inception requirement.
C. When the life policy is established
Correct. For life insurance, insurable interest is generally required at inception. It prevents wagering on a stranger’s life.
D. Only when the employee dies
Incorrect. The general life insurance requirement applies when coverage is established, not only at death.
Review the related terms
Use these lessons to revisit the concepts and try additional practice questions.