AD Banker Comprehensive Practice Exam

What is required at the time of application for health and life insurance?

1. Beneficiary status

2. Indemnity interest

3. Ownership right

4. Insurable interest

The correct answer is: Insurable interest

At the time of application for health and life insurance, the requirement of insurable interest is crucial. Insurable interest refers to a policyholder's financial stake in the life or health of the insured. This means that the individual applying for the policy must have a legitimate reason to seek insurance on another person's life or health, typically because they would suffer a financial loss if that individual were to die or experience a serious health issue. Insurable interest is essential to prevent insurance from being used as a gambling mechanism or a way for someone to benefit financially from another's death, which could lead to moral hazards and conflicts of interest. The requirement ensures that the policyholder has a vested interest in the continued well-being of the insured, aligning the motivations of the parties involved. While beneficiary status, indemnity interest, and ownership rights are all relevant in the context of insurance, they do not need to be established at the time of application in the same manner as insurable interest. Beneficiary designation occurs later in the process, indemnity interest is more relevant to property insurance, and ownership rights relate to the control of the policy after it has been issued. Thus, insurable interest stands out as a fundamental requirement at the application stage for both health and life insurance policies