In cases of third-party ownership, what must applicants have in relation to the proposed insured?

In situations involving third-party ownership of an insurance policy, having insurable interest is essential. Insurable interest refers to the legal interest a person has in the life or health of another individual. This means that the applicant must have a valid reason or stake in the well-being of the proposed insured, typically demonstrated by their relationship or involvement in the person's life.

The principle of insurable interest is grounded in preventing moral hazard, which occurs when individuals might benefit from the misfortune of others. Therefore, it is a necessary requirement before an insurance policy can be issued. If a third party owns the policy, they must demonstrate that they would suffer a financial loss or hardship if the insured individual were to die or suffer a loss, thus ensuring that the insurance has a legitimate purpose and connection.

Other options do not suffice in establishing a legitimate claim to ownership. For instance, while having some agreement with the insured might reflect a relationship, it does not, on its own, establish the necessary insurable interest. Similarly, while financial interest might indicate a potential benefit from the insured’s continued life, it does not inherently prove the required insurable interest specified by law.