Final answer:
If the insurance company refuses to pay after Jake dies, Luke might need to take legal action, but if it's proven that he had an insurable interest and there were no other issues, he might receive the insurance proceeds. The company could also be liable for additional damages if the refusal to pay is deemed unjust.
Step-by-step explanation:
When Luke takes out a life insurance policy on Jake's life, several legal issues can be relevant to whether or not the insurance company will pay out after Jake's death.
Specifically, insurance policies require an insurable interest at the time the policy is taken out. An insurable interest exists when the policyholder would suffer a financial loss from the death of the insured person. In the case of a loan, the lender generally does have an insurable interest in the borrower's life up to the loan amount.
However, if the insurance company refuses to pay the claim, Luke would likely need to contest their decision, potentially leading to legal action. The insurance company might refuse to pay for several reasons, such as misrepresentation or lack of an insurable interest.
If the courts find that Luke had a legitimate insurable interest and there were no other issues with the policy, he could be awarded the insurance proceeds. It's also possible that if the insurance company's refusal is deemed unjust, they may have to pay interest on the death benefit or face punitive damages, depending on the jurisdiction and circumstances.