Chartered Life Underwriter Practice Exam

Insurable interest refers to the legal right to insure something or someone, based on a stake in the value of the insured entity. In the context of life insurance, insurable interest exists when the policyholder would suffer financial loss or hardship from the death or impairment of the insured individual. In the case of a business owner’s relationship with their business client, insurable interest does not typically exist. While the business owner benefits financially from providing services or products to the client, the relationship is based on a commercial transaction rather than a significant personal risk. The business owner would not suffer direct financial loss due to the client’s death or incapacity in the same way they would if the insured was a partner or a family member. In contrast, all other scenarios involve direct personal or economic repercussions that create a legitimate insurable interest. A parent has a natural interest in the well-being of their child, a business owner has a vested interest in ensuring the financial stability of their business partner, and spouses often share financial resources and responsibilities that create a strong insurable interest.