Page 31 - Life Insurance underwriting Ebook IC 22

 Ensures insurable interest
 Verifies insurance needs
 Assesses violence potential
 Considers both need-based and income-based justification for coverage

1.4 Concept of insurable interest and insurable value

One of the basic concepts of life insurance is that the beneficiary under the policy
should have an insurable interest in the life of the insured. In other words, the owner of
the insurance:

 must have a financial interest in the continued existence of the insured; and
 would suffer significant financial loss in the event of death of the insured

Hence, the sum assured must not exceed the quantified value of that financial
need.

Few examples of valid insurable interest

Common Law Contract
Self Employer-employee
Spouse Company-key man
Children Partner-co-partner
Assets Creditor-debtor

a) Common Law
I) Self:
A person has unlimited insurable interest in his / her own life; a person can take life
insurance for self of any amount. But from an insurance company's underwriting point of
view, it is prudent to qualify this clearly by stating that the company retains the right to
determine the amount of cover appropriate to the circumstances and needs of the
parties to the contract. Based on the amount of life insurance applied for by the person
and after evaluating the premium paying capacity of the person from their financials, the
insurance company may:

 issue a life insurance policy for the requested amount; or
 suggest a life insurance policy for a reduced amount; or
 reject the request for the life insurance policy in its requested form

ii) Spouse;

A husband has insurable interest in the life of his wife and similarly, the wife has
insurable interest in the life of the husband. Both benefit from the well-being of each
other, and if something goes wrong with any one of them it affects the other adversely.
So the husband can take life insurance cover and / or health insurance I cover for his
wife and vice versa.

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