A person's spouse, parents, and children are presumed to have an insurable interest in that person's life based primarily on:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Close family relationships create an insurable interest through the presumed love and affection between the parties, together with the reasonable expectation of financial or emotional benefit from the person's continued life. Spouses, parents, and children fit this presumption, so a family member may take out a policy on the life of a close relative without proving a specific dollar loss. The insurable interest must exist when the policy is issued, and the amount of coverage should reasonably relate to the need. This presumption is what allows family members to insure one another readily.
Why the other options are wrong
- B) There is no legal duty requiring family members to insure one another. Coverage is voluntary and is based on the relationship, not on a statutory mandate.
- C) Beneficiaries need not be family members. The insurable-interest question concerns the owner of the policy, not the beneficiary.
- D) The insured's consent may be requested during underwriting, but it is not what creates the family-based insurable interest. The relationship itself does.
Memory hook
Family ties mean presumed interest; business ties mean proven loss.