What could be a consequence of failing to demonstrate insurable interest?

Failing to demonstrate insurable interest can lead to the policy being deemed void or invalid. Insurable interest refers to the requirement that the policyholder has a legitimate interest in the life or health of the insured person, which prevents insurance from being used as a wager or speculative contract. If this essential criterion is not satisfied, the underlying premise of the insurance policy collapses. Therefore, the insurer is not obligated to honor the policy, as it is fundamentally flawed.

In many jurisdictions, including South Dakota, insurable interest must exist at the time the policy is established. This means that if it is found that there was no insurable interest when the policy was initiated, the contract may be nullified entirely. The concept serves to protect both the integrity of the insurance market and the parties involved, ensuring that insurance addresses genuine risk rather than serving as a betting mechanism.

The other options do not accurately reflect the primary consequence of lacking insurable interest. While higher premiums might be a possibility in certain circumstances, they are not a direct result of failing to demonstrate insurable interest. Likewise, the idea that a policy could benefit multiple entities is not applicable in this context, as insurable interest typically pertains to a specific relationship between the policyholder and the insured. Lastly