An individual's insurable interest in his or her own life is generally considered to be:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Every person has an unlimited insurable interest in his or her own life. This is why a person may insure his or her life for any reasonable amount and name any beneficiary, including a business, a charity, or an unrelated individual. The unlimited interest in one's own life is a foundational principle of life insurance. By contrast, when a third party purchases coverage on someone else's life, that party's insurable interest must be based on a reasonable expectation of economic benefit or a close family relationship, and the amount of coverage should reasonably relate to the potential loss.
Why the other options are wrong
- B) Income does not cap the amount for which a person may insure his or her own life. Needs-based or value-based analysis may guide the coverage amount, but the legal interest itself is unlimited.
- C) Dependents' needs help determine appropriate coverage but do not limit the legal insurable interest in one's own life. A person may insure his or her own life for any amount.
- D) A person may name himself, herself, or the estate as beneficiary. Naming another party is not required for the policy to be valid.
Memory hook
Your own life equals unlimited interest; someone else's life means proving the loss.