Insurable Interest and Consent
Key Takeaways
A recognized family or economic relationship can support insurable interest. The insurer still assesses the requested amount and application.
BC law provides a written-consent alternative where interest is absent. This does not excuse forged signatures or non-compliance with underwriting procedures.
Later relationship changes require contract and designation review. They do not automatically invalidate every policy that had valid interest at inception.
Prevent a wager on another person's life
Insurable interest links a life insurance transaction to a recognized relationship or financial interest. Its purpose includes preventing a purely speculative wager on a stranger's death. It is assessed under the applicable statute and facts, rather than under an agent's personal view that any purchase is acceptable.
Sections 45–46 of BC's Insurance Act illustrate the Common Law statutory structure. The Act recognizes specified family, support, employment, and pecuniary relationships. It also provides exceptions involving group insurance and written consent of the person whose life is insured.
This structure corrects two opposite errors. Insurable interest is not irrelevant merely because premiums are affordable. But written consent is not an additional universal statutory requirement imposed on every adult life contract regardless of an already valid insurable interest. An insurer may nevertheless require signatures and consent through its own underwriting and application process.
Recognized relationships and economic interests
A person has an interest in their own life. The BC provision also identifies relationships such as child, grandchild, spouse, and certain support or employment connections. A corporation can have an insurable interest in a director, officer, or employee within the statutory framework.
A pecuniary interest must be genuine. A creditor may have a financial exposure connected with a debtor's continued life. A business may face replacement costs and lost revenue after a key employee's death. A buy-sell arrangement may create a documented need for funding.
Consider a business proposing $500,000 on a technical employee. The agent should document the business relationship and financial rationale, while the insurer applies its underwriting limits. Recognized interest is not a guarantee that any amount, premium, or product will be approved.
Consent as a statutory alternative
Under BC section 45, lack of insurable interest at inception generally makes the contract void, subject to the stated exceptions. Written consent of the person whose life is insured is one statutory alternative. For a child under sixteen, a parent may give the specified consent.
This rule should be read precisely. It does not authorize an agent to forge a signature, disregard an insurer's required application, or obtain consent through deception. The person must understand the insurance request and the consent must be genuine.
Suppose a person wishes to insure an unrelated acquaintance and has no recognized pecuniary relationship. The insurer must consider whether the lawful consent route and its own acceptance requirements are satisfied. The agent should not invent a business debt to create apparent interest.
Inception and later changes
Insurable interest generally concerns when the contract is made. A later relationship change does not automatically invalidate a properly formed policy under a rule that required interest at inception.
For example, a creditor's debt may later be repaid, or spouses may separate. The agent must then examine ownership, beneficiary instructions, assignments, domestic obligations, and contractual terms. It is inaccurate to say that every policy automatically disappears when the original financial relationship changes.
Likewise, a later absolute assignment is not simply a new application on the same life. Assignment law and policy restrictions apply. A legitimate ownership transfer must not be used as a pretext for prohibited trafficking or other misconduct.
Different roles require separate checks
The owner is not always the beneficiary. A person may have a recognized interest supporting formation while naming another beneficiary. The beneficiary's right depends on a valid designation and contract, not necessarily on that beneficiary separately proving inception insurable interest.
This distinction matters in a parent-owned policy on an adult child. The parent, child, premium payer, and designated recipient may differ. Record each role and verify the necessary interest, consent, capacity, and authority rather than treating one signature as proof of everything.
A legal representative must also have authority for the particular act. A property attorney's involvement does not automatically permit every new insured-life arrangement or beneficiary change. An agent should refer uncertain powers to the insurer and legal counsel.
Apply a decision sequence
A practical sequence is:
- Identify owner and proposed life insured.
- Determine the recognized relationship or pecuniary interest at inception.
- If relying on consent, establish the lawful consent and required evidence.
- Confirm capacity and representative authority.
- Submit truthful documents for insurer acceptance.
For exam purposes, do not confuse insurable interest with suitability. A policy can satisfy the legal interest requirement yet still be inappropriate for the client's needs or affordability. Ethical advice requires both valid formation and a defensible recommendation. Similarly, having a legitimate need does not excuse missing legal capacity or false application information.
Under the BC statutory framework, which statement is accurate?
Every adult policy is void without consent even where valid statutory interest exists.
Affordable premiums create interest in any stranger.
Every relationship change automatically voids existing coverage.
Written consent can provide an exception to the inception insurable-interest requirement.
Sections you finish are checked off in the contents.