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What is Insurable Interest in Life Insurance?

Individuals may consider buying a life insurance policy to secure their family’s finances in their absence. Individuals can also buy the policy on the lives of other individuals.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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When you buy a life insurance policy, you can get coverage for another individual too. For instance, you can buy the policy for your spouse or children. However, when seeking coverage for anyone other than yourself, you have to establish an insurable interest in the insured individual’s life. Only if the insurable interest is established, you can buy the coverage for another.

But what is the concept of insurable interest and how does it work?

Let’s understand.

 

What is insurable interest?

 

Insurable interest in insurance, in simple terms, means that you should have a financial interest in the life of the insured individual1. The financial interest should be such that you would make a financial loss in case the insured individual passes away prematurely.

However, in life insurance policies involving family members, insurable interest is not judged only by using financial metrics. In such cases, the emotional value in the life of the individual is also assessed.

 

How does Insurable Interest work?

 

If you buy a life insurance policy on the life of an individual, you have to establish the existence of insurable interest when you buy the policy1. After the policy is bought, the requirement of continued insurable interest is not required during the policy tenure.

For instance, you can buy a life insurance policy on the life of your spouse when you are married. However, if you get divorced during the policy tenure, the coverage would not be affected. In the case of a claim, the insurance company would not ask you to establish an insurable interest in the life of your spouse.

 

Who is eligible to have Insurable Interest in Life Insurance?

 

In a life insurance policy, insurable interest is said to exist primarily in the following cases1

  • An individual has an unlimited insurable interest in his/her own life,
  • An individual has an insurable interest in the life of his/her spouse,
  • An individual has an insurable interest in the life of his/her children.

Furthermore, other relations wherein insurable interest exists include the following2 and 3

  • Debtors have an insurable interest in the lives of their creditors up to the amount of debt owed
  • Employers have an insurance interest in the lives of their employees
  • 3. Partners have an insurable interest in each other’s lives up to the amount of capital contributed by them

 

Conclusion

 

Insurable interest is one of the important principles of a life insurance policy. It should be established when you buy the policy on another individual’s life. Check on whose life you have an insurable interest so that you can buy the policy for your loved ones.

 

FAQs

 

1. What is considered an insurable interest in life insurance?

You should have a clear financial interest or emotional interest in the life of another individual to establish an insurable interest in life insurance plans.

2. Where is Insurable Interest not applicable?

Insurable interest is not applicable in cases where individuals do not have a financial interest in the life of another individual. For instance, you don’t have any financial interest in your neighbor’s life. If the neighbor passes away, you don’t suffer a financial loss. As such, you cannot buy a policy on your neighbor’s life.

3. What are the types of insurable interest in insurance?

There are no types of insurable interest in life insurance. However, in general, in insurance plans, insurable interest can be of two types – contractual and statutory4.

4. What is the principle of insurable interest?

Someone having an insurable interest in you means that they would experience financial loss and hardship should you die. Without an insurable interest, a person cannot purchase a life insurance policy on another person.

References

1. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (Pages 88 to 90)

2. https://www.forbes.com/advisor/life-insurance/what-is-an-insurable-interest/

3. https://www.legalserviceindia.com/legal/article-939-insurable-interest-on-life-insurance-and-non-life-insurance.html

4. https://www.legalservicesindia.com/article/1924/Insurable-Interest-in-insurance-contract.html#:~:text=There%20are%20basically%20two%20types,)%20Contractual%20(2)%20Statutory

BJAZ-WEB-EC-03482/23

Life Insurance Guide

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A suitable financial plan may be defined by its components. Amongst other things, one aspect, it may be incomplete without, is a steady amount of investment.

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A suitable financial plan may be defined by its components. Amongst other things, one aspect, it may be incomplete without, is a steady amount of investment.

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Disclaimers:
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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The views stated in this article is not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

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Disclaimer

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any call made, SMS or WhatsApp sent in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

 

Please refer to BALIC Privacy Policy

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Disclaimer

%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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Disclaimer

*Above illustration is for Bajaj Allianz Life eTouch II - A Non-Linked, Non-Participating, Individual Life Insurance Term Plan (UIN:116N198V01) considering Male aged 25years | Non-Smoker | Policy Term(PT)– 30 years | Premium Payment Term (PPT)– 30 years | Sum Assured opted is Rs.1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 5,092. 2nd Year onwards premium Rs. 5,520. Total Premium Rs. 1,65,172 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly instalments (Lumpsum Payout Percentage: 40, Income Payout Percentage: 60). Income payout instalment opted for 40 years | Premium shown above is inclusive of Online Discount only, no other discounts have been considered and exclusive of Goods & Service Tax/ any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

##Tax benefits as per prevailing Section 10(10D) and Section 80C (under old tax regime) of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

**5% Discount applicable for customer's first individual life insurance policy, applicable only on first year’s premium. 5% Discount for salaried customers, applicable only on first year’s premium. 6% Discount on online purchase is available for regular premium payment and limited premium payment frequency on first year's premium.

$Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium means total of all the premiums paid under the base product, excluding any extra premium and taxes, if collected explicitly.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

X
Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any Call made, including via Voice over Internet Protocol & WhatsApp, SMS or WhatsApp messages, in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

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