In life insurance, insurable interest is present when

• A. the insured and the insurer are business partners
• B. the policy is sold to the general public
• C. An economic interest exists for the continuance of the insured's life
• D. the applicant is a government official

Answer: (C)

Insurable interest in life insurance means the policyowner would suffer a financial loss or have a legitimate economic stake if the insured dies. This stake has to exist when the policy is issued. The correct idea is that an economic interest exists for the continuance of the insured's life—the policyowner stands to gain or avoid a loss by the insured living, such as a family member whose financial well-being depends on the other's life, or a business partner with a stake in the partnership.

The other scenarios don’t establish that financial stake. Simply having a relationship like being business partners with the insured doesn’t automatically create insurable interest in the context of a life policy, selling to the general public isn’t about a financial stake, and being a government official isn’t inherently connected to a financial interest in the insured’s continued life.