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Insurable interest in life insurance

Jun 2, 2023 3 Minute Read

Life insurance can feel intimidating, especially with complex policy options and legal language. In its simplest form, you can take out a life insurance policy for yourself and name a loved one as the beneficiary who will receive the policy’s death benefit if you pass away.

What some people don’t know is that you can take out life insurance on another person as long as you can prove an insurable interest. But what exactly does that mean? In this article, we’ll explore what insurable interest is, how to prove it, and the many relationships where you may have a reason to take out life insurance.

What is insurable interest?

Insurable interest in life insurance means that someone else’s death would financially impact you. For example, if you and your partner are married and split the household bills 50/50, it would cause an undue financial burden on the surviving spouse if one of you passed away. That means you and your spouse have an insurable interest in each other.

On the other hand, the passing of your wealthy neighbor, who you occasionally say hello to, has no financial implications for you. So you would have no insurable interest and, therefore, wouldn’t be able to take out a life insurance policy on them.

When must insurable interest exist in a life insurance policy?

There must always be an insurable interest when taking out a life insurance policy. That means you can’t just take out life insurance on anyone but only have reason to do so when you would experience financial hardship due to the insured person’s death.

How do you prove insurable interest?

If you plan to take out a life insurance policy on another person, three parties are involved: the policyholder, the insured, and the beneficiary. You may act as both the policyholder (the one who pays the premiums) and the beneficiary (the one who receives the death benefit). The insured (the one whose life is insured by the policy) is the person for whom you can prove an insurable interest and that their passing would financially impact you.

Often, the insurer will speak with all three parties involved to clarify the relationships and establish insurable interest.

What relationships typically have an insurable interest?

There are common relationships in which people typically have insurable interest, including those outlined below.


Spouses or partners often share the financial burdens of the household, whether or not both partners are working. In general, both spouses need life insurance. That’s because even if someone isn’t necessarily earning a paycheck but provides childcare or other household duties, it would cost the spouse employed outside the home to replace them if the unexpected happens.


Parents may have an insurable interest in their adult children if they’ve co-signed on a loan or if children provide meaningful financial support for the family home.

Business partner

A small business lender may require business partners to take out life insurance on one another. Doing so can help protect business continuity if the unexpected occurs.


Siblings may have situations where they rely on each other for payments to a family-owned property or when one provides significant financial support for aging parents.


There are financial implications if aging parents move back into the family home. You may have an insurable interest if you’d be on the hook for parents’ medical bills or final expenses once they’re gone.

Find the right life insurance policy for you

Whether you’re taking out a policy for someone else or yourself, there are plenty of options to choose from. A licensed insurance agent can help compare quotes from multiple insurers to find the best fit for you.