Insurable Interest Made Clear?

In order to the be a beneficiary of a life insurance policy, the beneficiary must have a beneficiary interest. So what does that mean?

This question is discussed at length in the 1894, Texas Supreme Court opinion styled, Cheeves v. Anders.

1. Insurable Interest — Public Policy.

It is against public policy to allow any one who has no insurable interest to be the owner of a policy of insurance upon the life of a human being.

2. Same — Beneficiary.

Such policy can not be beneficially owned by any one not interested in the life insured, whether the policy be taken out in the first instance by the noninterested party, with or without the consent of the insured, or that he acquired the policy by assignment from the person whose life is insured, or from another who had an insurable interest.

3. Holder of Policy by One Having no Insurable Interest.

If the person named as beneficiary, or the assignee of such policy, has no insurable interest in the life of the insured, he will hold the proceeds as the trustee for the benefit of those entitled by law to receive it.

4. Creditor of Insured.

The limit of interest of a creditor in a policy upon the life of his debtor is the amount of such debt and interest plus amount expended to preserve the policy with interest thereon. The remainder will go to the estate of the insured.

5. Liability of the Insurance Company.

In case a policy is held by one having no insurable interest in the life, the company can not avoid payment on that ground. The insurance company must perform its contract, and the law will dispose of the money according to the rights of the parties.

6. Cessation of Insurable Interest.

The want of insurable interest is just as absolute where it has ceased as where it never existed. Interest in a policy upon one member of a partnership held by the firm ceased upon the dissolution of such firm, and the survivor has no interest in the recovery.

7. Premiums Paid by Partnership.

Premiums paid by a partnership upon the life of one of its members payable to the firm, the firm having dissolved before the death, are a charge upon the policy, and are recoverable by the owner of the firm assets.

8. Pleading — Practice.

The facts upon which the right arises (to recover the premiums, etc.), are alleged, and there is a prayer for general relief. This was sufficient to entitle the pleader to whatever the law would accord him upon the alleged facts, and it was error to sustain a general demurrer to such pleading.