Washington Life Producer Practice Exam

Which of the following statements regarding insurable interest in a life insurance contract is NOT true?

1. Insurable interest must exist at the time of the policy inception

2. Insurable interest can be established sufficiently by financial loss

3. Insurable interest can be established sufficiently by sentimental attachment alone

4. Insurable interest is required for the policy to be valid

The correct answer is: Insurable interest can be established sufficiently by sentimental attachment alone

Insurable interest in a life insurance contract is a fundamental principle that requires the policyholder to have a legitimate interest in the life of the insured. This interest is imperative at the time the policy is initiated to ensure the contract's legality and validity. The statement regarding sentimental attachment alone being sufficient to establish insurable interest is incorrect because, while emotional ties can contribute to a sense of interest in someone's well-being, they do not satisfy the legal requirement of insurable interest. Insurable interest must be based on a likelihood of financial loss or a legitimate stake in the insured's life, thereby ensuring that the policyholder is not merely taking out insurance for speculative reasons. In contrast, the other statements are true. Insurable interest must indeed exist at the start of the policy, and it can be demonstrated through potential financial losses incurred from the death of the insured. Additionally, the presence of insurable interest is essential for the policy to be valid, confirming that the policyholder has a genuine stake in the insured's life.