When is a life insurance policy considered a wagering contract?

A life insurance policy is considered a wagering contract when it lacks insurable interest. Insurable interest is a fundamental principle in insurance that requires the policyholder to have a legitimate interest in the life or health of the insured. This means that the policyholder will suffer a financial loss or hardship if the insured person dies or becomes ill.

If a life insurance policy is purchased without this insurable interest, the contract resembles a wager on the life of the insured, where the policyholder stands to gain only from the death of the insured rather than from a legitimate concern for their well-being. This is why such contracts are typically considered void or unenforceable, as they go against the ethical and legal principles underpinning the insurance industry.

The other choices do not accurately describe the conditions under which a life insurance policy becomes a wagering contract. For example, defining beneficiaries, whether purchased online, or having unpaid premiums do not inherently affect the existence of insurable interest. Understanding this concept is key in recognizing the validity and enforceability of life insurance contracts.