Nature and purposes of principle of insurable interest

Reference no: EM133684262

Question

Jim and James have been best friends since elementary school. In fact, they have been inseparable since they were young. They grew up a few houses apart from each other, went to the same private school, college, and both ended up getting their MBA from the same University. After the financial crisis of 2008, they decided that it would be in their best interest to start a business together as co-equal partners. They formed J&J Partners Unlimited. At J&J Partners, Jim managed the day-to-day operations and James was the "rain-maker" (James was responsible for getting all the new clients and advertising). The business did well overall. In 2012, to expand the business, Jim and James decided to take out a personal loan that was meant to help with the expenses associated with the expansion. Because of the nature and purpose of the loan, Jim and James were co-signers for the personal loan. Unfortunately, in 2018, while going for a jog one Saturday evening, James was struck and killed by a driver who claimed not to have seen him running. After settling James's estate, Jim notified AIG, a life insurance company, of James's death and requested payout on a life insurance policy that he had taken out on James. Unbeknown to anyone, and 4 years before James's death, Jim had taken a life insurance policy out on James and made all the premium payments to keep the policy active. After investigating the matter, AIG denied Jim's claim request on the ground that there is no insurable interest between the insured and the sole beneficiary, Jim.

Think about the facts and discuss the following:

1. Describe the nature and purposes of the principle of insurable interest.

2. Do you agree or disagree with AIG's denial of the claim? Why or why not?

Reference no: EM133684262

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