To collect policy proceeds as the owner-applicant, what must be true at the inception of the contract?

• A. They must have insurable interest at the time the contract is issued.
• B. They must be the insured.
• C. They must designate a beneficiary who is a relative.
• D. They must have no insurable interest.

Answer: (A)

Having insurable interest at the start of the contract is essential for the owner-applicant to collect the policy proceeds. Insurable interest means the owner would suffer a financial or economic loss if the insured dies, or stands to gain a direct benefit from the insured’s continued life. This requirement prevents wagering on lives and ensures the policy serves a legitimate purpose.

In practice, the owner-applicant doesn’t have to be the insured, and they don’t have to designate a relative as beneficiary. They only need to have that genuine interest in the insured at the time the policy is issued. If there’s no insurable interest at inception, the contract could be invalid or unenforceable, regardless of who ultimately receives the proceeds.