What must an insured demonstrate to prove insurable interest when applying for life insurance?

To prove insurable interest when applying for life insurance, an insured must demonstrate that they have a financial stake in the individual’s life. Insurable interest is a fundamental principle in insurance that helps prevent moral hazard and ensures that the policyholder has a legitimate reason to insure another person's life. This typically means that the policyholder's financial wellbeing or security is linked to the individual whose life is insured; for example, a spouse, business partner, or family member.

Having a financial interest ensures that the insured would suffer a financial loss if the insured individual were to pass away, thereby justifying the policy. Without such an interest, the purpose of life insurance could be undermined, as it could lead to situations where individuals might benefit from the death of others without any legitimate reason to do so. The requirement for financial stake in a person's life is a legal and ethical safeguard in the insurance industry.