What is required when third-party ownership is involved and the applicant is also the primary beneficiary?

When third-party ownership is involved in a life insurance policy, and the applicant is also the primary beneficiary, it is essential for the applicant to have an insurable interest in the insured. Insurable interest is a fundamental principle in insurance that requires the policyholder to have a legitimate stake in the continued life of the insured, which helps prevent insurance fraud and ensures that life insurance policies are used for their intended purpose.

In this scenario, the applicant cannot merely take out a policy on someone else's life without demonstrating an insurable interest; otherwise, it could lead to moral hazard or adverse selection issues. This requirement safeguards the insurer's risk assessment and ensures that the policyholder has a valid reason for seeking coverage on the insured's life.

While other factors, such as disclosures and consent from the insurer, may play a role in the policy's application and approval process, the pivotal aspect in the context of third-party ownership and being the primary beneficiary is the necessity for insurable interest. This aligns with regulations governing life insurance and promotes ethical practice within the insurance industry.