Colorado Life Producer License Practice Test

Must a beneficiary have insurable interest in the insured?

1. Yes, it is a requirement in all states

2. No, it is not necessary for beneficiaries

3. Only if the beneficiary is a family member

4. Yes, but only for irrevocable beneficiaries

The correct answer is: No, it is not necessary for beneficiaries

A beneficiary is not required to have an insurable interest in the insured under current insurance law in most jurisdictions, including Colorado. The insurable interest requirement primarily applies when a policy is initially taken out, mainly to prevent moral hazard, where someone could potentially benefit from the loss or death of another party without a legitimate stake in their well-being. Once a life insurance policy is in effect, the insured can designate anyone as a beneficiary, regardless of whether that beneficiary has any insurable interest. This flexibility allows for varied personal and financial relationships to be reflected in the designation of beneficiaries, enabling individuals to leave their policy benefits to friends, charities, or anyone else of their choice. The other options suggest varying levels of insurable interest requirements, but the key point remains that for beneficiaries, this requirement does not exist, allowing for broader designation choices.