New Jersey Life Insurance Exam Practice Question
The applicant must face the possibility of losing something of value in the event of the insured’s death. This principle is known as
Correct Answer: A
Rationale: Insurable interest is a fundamental principle in insurance, requiring the applicant to have a stake in the insured's life or property, ensuring they could suffer a financial loss upon the insured's death. This principle prevents moral hazard and ensures that insurance serves its intended purpose.
Adverse selection refers to the tendency of those at higher risk to seek insurance, which does not directly relate to the applicant's stake in the insured's life. Indemnification involves compensating for loss but does not address the necessity of having a vested interest. A viatical settlement pertains to selling a life insurance policy before death, which is unrelated to the initial requirement of insurable interest.
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