Cherise contacted her insurance agent and said she was interested in purchasing several life insurance policies: (a) a policy on her own life for $100,000, naming her son and daughter as beneficiaries; (b) a policy on her neighbor's life for $100,000, since she had observed him engaging in reckless behavior, naming herself as beneficiary; (c) a $5,000 policy on another neighbor to cover a loan Cherise made to him, naming herself as beneficiary; and (d) a $250,000 policy on her business partner, naming herself as beneficiary. Discuss the legality of each of these potential contracts.
What will be an ideal response?
A person may insure her own life for any amount and may name any beneficiary. Anyone who takes out a life insurance policy on the life of another must have an insurable interest in that person. The policy in (a) would be legal, as Cherise is insuring her own life. The potential policy in (b) is lacking in insurable interest and therefore would not constitute an enforceable contract. The policy in (c) would be legal because the debtor-creditor relationship creates an insurable interest. The potential policy in (d) would be legal, as the business relationship creates an insurable interest; Cherise would need compensation if her business partner dies.
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