AD Banker Comprehensive Practice Exam

If the applicant is not the proposed insured, what must they have?

1. A valid state issued drivers license

2. A relationship to the insured's named beneficiary

3. The insured's permission to be the applicant

4. An insurable interest in the life of the insured

The correct answer is: An insurable interest in the life of the insured

In the context of life insurance, when the applicant is not the proposed insured, they must demonstrate an insurable interest in the life of the person being insured. Insurable interest is a fundamental principle in insurance that requires the applicant to have a legitimate interest in the continued life of the insured. This is to prevent moral hazard or the incentive to cause harm to the insured for financial gain. For instance, family members often have an insurable interest in each other's lives because they are affected by the insured's life or death. Similarly, business partners may have an insurable interest in one another since the loss of one partner could significantly impact the business's financial stability. The requirement of insurable interest exists to ensure that insurance contracts fulfill their purpose of risk management and do not serve as speculative or wagering contracts.