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The Law of Life Insurance: Key Issues in Each State

DRI Defense Library Series

The Law of Life Insurance: Key Issues in Each State is intended to provide life insurance companies and attorneys with an overview of the law of each of the 50 states and the District of Columbia regarding life insurance claims. Each state chapter addresses how state common law and statutes address the law of life insurance claims, including formation of a life insurance contract, maintenance of a life insurance policy, changes in the beneficiary, payment of life claims, contested life insurance claims, material misrepresentations in the application, and defenses. The authors and editors are experienced attorneys who have practiced in this area of the law for years. This book will be a useful tool for any practitioner, whether representing an insurer, a beneficiary, an insured, or in-house counsel.


Formation of a Life Insurance Contract

Insurable Interest Requirement

Under Wisconsin law, the person to whom an insurance policy is issued must have an insurable interest in the policy's subject. See Wis. Stat. §631.07(1) ("No insurer may knowingly issue a policy to a person without an insurable interest in the subject of the insurance.").

A life insurance policy can only be issued "to a person other than the one whose life or health is at risk" if the subject of the policy has consented in writing. Wis. Stat. §631.07(2). However, there are numerous exceptions where the subject's consent is not required. Wis. Stat. §631.07(3). A person does not need consent to obtain life insurance on a dependent lacking legal capacity or on a family member "living with or dependent on the person," and a creditor does not need consent to obtain life insurance on a debtor "in an amount reasonably related to the amount of the debt." Wis. Stat. §§631.07(3)(a)l, 2, 3. Someone other than the insured may consent in certain contexts: a parent or guardian may consent to the issuance of a policy on a dependent child, a grandparent may consent to a policy on a grandchild, and a "court of general jurisdiction may give consent on ex parte application on the showing of any facts the court considers sufficient to justify such insurance." Wis. Stat. §631.07(3)(b).

If the policyholder lacks insurable interest or if consent has not been given, an insurance policy is not invalid. Wis. Stat. §631.07(4); Martin v. Tower Ins. Co., 349 N.W.2d 90 (Wis. Ct. App. 1984). Rather, in that circumstance, a court may order that the proceeds "be paid to someone other than the person to whom the policy is designated to be payable, who is equitably entitled thereto." Wis. Stat. §631.07(4). A court may also "create a constructive trust in the proceeds or a part thereof, subject to terms and conditions of the policy other than those relating to insurable interest or consent." Id.

The Wisconsin Administrative Code states that a charitable organization may be the applicant, owner, or beneficiary of an insurance policy on the life of any individual and that the organization will be "deemed to have an insurable interest in the individual." Wis. Adm. Code INS §2.45 (Aug. 2015).

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