The policy owner and the life insured may be the same person or different people, but there must be an insurable interest at the time of application. Insurable interest exists when the policy owner would suffer a genuine financial loss or other hardship from the death of the life insured.
Ontario's Insurance Act provides that insurable interest exists in specified relationships: a person has an unlimited insurable interest in their own life; spouses have insurable interest in each other; parents and children have insurable interest in each other; creditors have insurable interest in debtors up to the amount of the debt; employers have insurable interest in key employees (to a reasonable limit).
Why it matters: a contract without insurable interest is void as a wagering contract against public policy. The insurable interest requirement must be met at inception; if it disappears later (e.g., a business partner is bought out), the policy remains valid but cannot be augmented.
Recall: When must insurable interest exist -- at the time of application, at the time of claim, or both? Name two relationships that automatically create insurable interest under the Insurance Act.