Question

"Xavier sold his neighbor, Jill, a speed boat for $10,000, payable in monthly installments. Xavier then purchased an insurance policy on Jill's life, worth $200,000 if Jill died in an accident. Jill died in an accident with the boat the following week. The insurance company offered Xavier only $10,000, the balance still due on the speed boat. Is Xavier entitled to the full $200,000?

a) Yes, because he himself purchased the life insurance policy for $200,000, and there are no suspicious circumstances on these limited facts.

b) No, because it is highly suspicious that Jill died on the boat Xavier sold her just one week later.

c) No, because anyone taking out a policy on the life of another must have an insurable interest in the person.

d) Yes, because insuring someone's life is exactly the purpose of a life insurance policy.

Answer 1

Xavier would not be entitled to the full $200,000 insurance policy value unless he had an insurable interest in Jill's life that justified the full amount. The correct answer is 'c', he is entitled only to the balance still due on the speed boat, which is $10,000, as the insurance company offered.

Step-by-step explanation:

The question you're asking is related to insurable interest in an insurance policy. In the scenario described, Xavier purchased an insurance policy on Jill's life. The correct answer in this case would be 'c' because anyone taking out a policy on the life of another must have an insurable interest in the person. This means that Xavier must stand to suffer a genuine financial loss upon Jill's death to be entitled to the full value of the policy. Since the insurance policy on Jill's life was worth $200,000 and the unpaid debt for the speed boat was only $10,000, unless Xavier can demonstrate a legitimate insurable interest justifying the excess amount, he would only be entitled to the $10,000 remaining on the debt.

No, Xavier is not entitled to the full $200,000. The insurance company offered Xavier only $10,000, the balance still due on the speed boat. This is because Xavier did not have an insurable interest in Jill's life. In order to purchase a life insurance policy on someone's life, the policyholder must have a financial interest in the insured person. Xavier selling a speed boat to Jill does not establish an insurable interest in Jill's life, so he would not be entitled to the full insurance payout.