There’s lots that has been and will be written about the changes in the definition of insurable interest in the context of life insurance. Traditionally, an owner of a life insurance policy had to have an insurable interest in the life of the person insured. Typically that meant the policyholder herself, or her spouse or child. The insured life could not be that of a stranger with no connection to the owner. Purchasing a policy on a stranger’s life is considered gambling on someone’s life and generally is not permitted in most jurisdictions.
But a lot has changed: the definition of insurable interest in various states has been amended, and life insurance policies are now frequently sold, either individually or packaged and sold as collateral for securities issued backed by these portfolios of life insurance policies. The traditional notion of an insurable interest on someone else’s life has been altered.
Recently, the Seventh Circuit Court of Appeals succinctly addressed a dispute where a bank sought life insurance proceeds on an individual’s life from a policy it purchased, acting as a securities intermediary, a few years before the person died. Upon acquiring the policy, the bank, in its intermediary capacity, was named as the beneficiary.