What must happen for an insurable interest to be valid in a life insurance policy?

For an insurable interest to be valid in a life insurance policy, it is essential that the insured has a legal obligation towards the beneficiary. This principle ensures that the party purchasing the insurance stands to suffer a financial loss or detriment if the insured individual were to pass away. Insurable interest serves as a critical aspect of insurance contracts, preventing them from being used for speculative purposes. It establishes a legitimate reason for the policyholder to seek coverage on the life of another individual.

In some cases, insurable interest can arise from familial relationships, financial ties, or legal obligations such as debts or contracts. The requirement that the insured must have this obligation protects the integrity of the insurance contract, ensuring that it is based on financial realities rather than mere chance or speculation.

Other options presented may not be complete or accurate reflections of the insurable interest requirement. While having a family member as a beneficiary may contribute to the relationship, insurable interest does not exclusively hinge on familial ties. Additionally, the notion that the policy must be approved by an insurance agent pertains to the administrative process of obtaining insurance, rather than the legal framework defining insurable interest. Lastly, while taking out a policy for financial gain might relate indirectly to insurable interest, it does not capture the