What is a requirement for a policy owner to have insurable interest?

For a policy owner to have insurable interest, it is essential that they face a potential financial loss in the event of the insured's death. This criterion ensures that there is a legitimate interest in the continued life of the insured, which is a fundamental principle in insurance contracts. Insurable interest exists to prevent moral hazard, where someone might be incentivized to cause harm or loss to another for financial gain.

In practical terms, if a policy owner stands to suffer a financial setback or loss due to the insured's passing, it establishes a valid reason for the insurance policy. This principle is why various relationships—such as those between spouses, parents and children, or business partners—can create insurable interest, as these relationships often involve financial dependence or obligations.

While relatives and business partners may indeed have insurable interest, simply being a relative (as mentioned in one of the choices) does not automatically establish this interest in a legal or financial sense without the potential for loss. Similarly, the insured's consent is not a requirement for establishing insurable interest, though it is considered a best practice to inform the insured about the policy.