Washington Life Producer Practice Exam

What is present when an applicant stands to lose value if the insured dies?

1. Fiduciary responsibility

2. Insurable interest

3. Universal consent

4. Beneficiary designation

The correct answer is: Insurable interest

Insurable interest is present when an applicant stands to lose value if the insured dies. This concept is a fundamental principle in insurance underwriting. It requires that the policyholder has a legitimate interest in the continued life or health of the person insured. For example, a spouse, parent, or business partner has insurable interest because their financial or emotional stability would be negatively impacted by the death of the insured. This principle helps to prevent moral hazards, such as taking out life insurance on someone else without a legitimate need or interest in their wellbeing. Fiduciary responsibility pertains to the obligation of an agent to act in the best interest of the client, while universal consent is not a recognized term in insurance contexts related to this question. Beneficiary designation refers to naming a person or entity to receive the benefits of a policy upon the insured’s death, but it does not relate directly to the condition of standing to lose value in the event of that death. Thus, insurable interest accurately defines the scenario outlined in the question.