'Insurable Interest' explained: Why a savings plan for my brother got rejected
The concept of "insurable interest" is a crucial part of every insurance contract and is considered a legal prerequisite for obtaining insurance.
- Jul 5, 2024,
- Updated Jul 5, 2024 10:13 AM IST
I am a 34-year-old female with a decent yearly income. I wanted to buy a savings plan for my brother, but my application was rejected at the underwriting stage. After enquiring about the reason, I learned that it was due to a concept called "insurable interest." Please elaborate on this. Also, is there any way I can buy a guaranteed savings plan for my brother? If not, what are my options?
Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance
The concept of "insurable interest" is a crucial part of every insurance contract and is considered a legal prerequisite for obtaining insurance. While there is no specific precedent to establish why there is no insurable interest for a brother to be a beneficiary in a life insurance policy, there is a potential for moral hazard in such cases. As a result, siblings, despite being blood relatives, are subject to underwriting policies that vary for each insurer.
In life insurance, underwriters check for the presence of insurable interest at the time of policy issuance. Life insurance is designed to provide financial support to one's family to ensure their life goals remain on track and are not affected by the policyholder's death.
Insurable interest refers to the relationship a policyholder has, which can be defined by blood relation, marriage, or monetary interest.
A customer can buy a life insurance policy on someone else's life, provided they have an interest in that person remaining alive or expect financial loss from that person's death. The conditions that life insurance companies look for may vary based on the insurer’s underwriting policies and practices.
Subject to the fulfilment of certain conditions as required by an insurer, an alternative option could be to include your brother as a nominee in your own life insurance policy.
(Views expressed by the investment expert are his/her own. Email your investment queries to askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)
I am a 34-year-old female with a decent yearly income. I wanted to buy a savings plan for my brother, but my application was rejected at the underwriting stage. After enquiring about the reason, I learned that it was due to a concept called "insurable interest." Please elaborate on this. Also, is there any way I can buy a guaranteed savings plan for my brother? If not, what are my options?
Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance
The concept of "insurable interest" is a crucial part of every insurance contract and is considered a legal prerequisite for obtaining insurance. While there is no specific precedent to establish why there is no insurable interest for a brother to be a beneficiary in a life insurance policy, there is a potential for moral hazard in such cases. As a result, siblings, despite being blood relatives, are subject to underwriting policies that vary for each insurer.
In life insurance, underwriters check for the presence of insurable interest at the time of policy issuance. Life insurance is designed to provide financial support to one's family to ensure their life goals remain on track and are not affected by the policyholder's death.
Insurable interest refers to the relationship a policyholder has, which can be defined by blood relation, marriage, or monetary interest.
A customer can buy a life insurance policy on someone else's life, provided they have an interest in that person remaining alive or expect financial loss from that person's death. The conditions that life insurance companies look for may vary based on the insurer’s underwriting policies and practices.
Subject to the fulfilment of certain conditions as required by an insurer, an alternative option could be to include your brother as a nominee in your own life insurance policy.
(Views expressed by the investment expert are his/her own. Email your investment queries to askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)