West Virginia State Life Insurance Practice Exam

When third-party ownership is involved, what must applicants who are also the stated primary beneficiary possess?

1. Financial stability

2. Insurable interest in the proposed insured

3. Proof of income

4. Credit rating

The correct answer is: Insurable interest in the proposed insured

When third-party ownership is involved in life insurance, it is crucial for applicants who are also the stated primary beneficiary to possess an insurable interest in the proposed insured. Insurable interest refers to a legitimate interest in the continued life of the insured individual, which means the beneficiary would suffer a financial loss or hardship if the insured were to pass away. This requirement helps prevent moral hazards and ensures that insurance is used for its intended purpose of risk management and protection. In the context of third-party ownership, having an insurable interest is a legal obligation that must be satisfied to issue a policy. This means that even if the applicant is not the same person as the insured, they must still demonstrate a vested interest in the life of the insured, which can be established through relationships like those of family members, business partnerships, or creditor-debtor scenarios. Thus, option B accurately captures the fundamental requirement in these situations.