New York Child Abuse Identification and Reporting Practice Exam

Which policy feature ensures a life insurance policy is legally enforceable?

1. Absolute assignment

2. Insurable interest

3. Provisions for payment of premiums

4. Terms of renewal

The correct answer is: Insurable interest

A legally enforceable life insurance policy is fundamentally grounded in the concept of insurable interest. Insurable interest refers to the requirement that the policyholder must have a legitimate interest in the continued life of the insured individual. This principle is crucial because it prevents individuals from taking out insurance policies on the lives of others without a valid reason, which could lead to fraudulent claims and moral hazard. For a life insurance policy to be valid, the policyholder must face a potential financial loss or injury should the insured person pass away. This relationship creates a legal and ethical basis for the contract, ensuring that it is not merely a speculative investment but rather a genuine protective measure against loss. Consequently, the presence of insurable interest is what makes a life insurance policy enforceable in a court of law.