If your family is financially dependent on you, they have what is called an insurable interest in your life. This means that they would suffer a financial loss and not be able to meet all their expenses if you passed away. For example, without your income your family could not afford some or all of their housing, food, and education costs. Because there is an insurable interest, you can insure your life on a life insurance policy and name your spouse or child as beneficiary. If you pass away, your beneficiary can use the insurance pay-out to pay expenses like food, school fees and a home loan.
An insurable interest doesn’t only have to be financial. There is also an insurable interest when there is a close, affectionate relationship between people, such as between family members who rely on each other for love and emotional support.
Is there an insurable interest between family members?
Yes, if you are close and there is bond of love and affection, and/or financial support. If you are estranged family members and never see each other or support each other financially, there is no insurable interest.
Is there an insurable interest between extended family members and friends?
Yes. Just because you are not close relatives does not mean you don’t share a bond or support each other financially. For example, if your uncle provides for you, you have an insurable interest in his life.
Do I have an insurable interest in my fiancé if they don’t support me financially?
Yes. An insurable interest also exists when there is a non-monetary loss such as an emotional loss, which you would suffer if your fiancé passed. Even if you don’t support each other financially, there is an insurable interest.
Is there an insurable interest when you get divorced or separate from your partner?
Yes, if you support an ex-partner or ex-spouse or pay maintenance. In this case the insurable interest is financial, so there is an interest that can be insured. An insurance pay-out would be used to cover future maintenance.
Can I insure the life of my business partner?
Yes. If your partner were to die you might need funds to restructure the business or buy their share in the business so it can continue operating. This is an insurable interest, and you can insure your business partner’s life.