APPLICATION, UNDERWRITING, DELIVERY · 5 MIN READ

Application, Contract Formation, and Insurable Interest

A life insurance contract forms through classic offer and acceptance. The insurer's advertising and the producer's solicitation are merely invitations; the completed application submitted with the first premium is the applicant's offer, and the insurer accepts by approving the risk and issuing the policy. Until acceptance, no contract exists (absent a receipt granting temporary coverage) and the applicant can withdraw the offer. The application does heavy legal work: the applicant's signature certifies the health answers are full, complete, and true to the best of their knowledge, and authorizes attaching the application to the policy — where, under the entire-contract concept, it becomes part of the contract and defines the only statements the insurer may later use to contest. Answers on the application are representations (statements believed true), not warranties (statements guaranteed true); an insurer rescinds only for a material misrepresentation — one that would have changed the underwriting decision — and only within the two-year contestable period. Concealment is the intentional withholding of a known material fact, the mirror image of misstating one. Insurable interest polices against wagering on human life. In life insurance the interest must exist when the policy is issued, and it need not continue: a divorced spouse or repaid creditor named at issue can still collect. Every person has unlimited insurable interest in their own life; close family relationships carry a presumption of interest; and business relationships qualify through economic dependency — an employer in a key person, a partner in a partner for buyout funding, and a creditor in a debtor, though the creditor's coverage is limited to roughly the debt owed. Stranger-originated life insurance (STOLI) weaponizes this doctrine's gap. Investors recruit an insured, fund premiums through non-recourse loans, wait out the two-year contestable period, then take the policy. Courts hold such policies void from inception for lack of insurable interest — expiration of the contestable period bars rescission for misrepresentation, but it cannot validate a contract that was a wager from day one. Underwriting itself exists to combat adverse selection: the tendency of the highest-risk applicants to seek the most coverage.