Chartered Life Underwriter Exam 2025 – 400 Free Practice Questions to Pass the Exam

Insurable interest is a foundational principle in insurance that requires the policyholder to have a legitimate stake in the insured's life or health. This principle ensures that insurance is used for protection and not as a gambling mechanism. All types of life insurance, whether term, whole, or universal, necessitate proof of insurable interest at the time of application.

In the case of term life insurance, the individual purchasing the policy must demonstrate an interest in the insured's well-being, such as a spouse, child, or business partner, ensuring that the policy is in place for valid reasons. Similarly, with whole life and universal life insurance, insurable interest is also required, as these policies accumulate cash value and provide long-term benefits that are similar in nature.

The requirement of insurable interest applies not only to the individual seeking the life insurance but also to any third party who may be taking out a policy on the insured. Therefore, regardless of the type of life insurance being considered, proof of insurable interest remains a critical component for the legitimacy and enforceability of the policy.