Insurable interest can be established through either pecuniary (monetary), or relationship.
Pecuniary interest can be established by ownership or interest in property either personal or real. Individuals may insure property that they have an insurable interest in.
Insurable interest based in relationship can be established through either close blood relation or affinity. This prevents life insurance from being used as a gambling tool. If persons could simply insure strangers then the possibility of gambling on the life span of another could become an issue.
Blood relations can be parents and children, brothers and sisters, grandparents and grandchildren, and husbands and wives. Life insurance policies are based upon an insurable interest that must exist at the time the policy is issued. Therefore, if spouses divorce, unless the policy contains a clause to terminate upon divorce, the policy may be maintained.
In the case presented, Ajax Insurance Co. is correct to not pay the claim, and only return premiums, since at the time of the loss John was the title holder. Therefore, the insurable interest belonged to John not to Adia.
Beta Insurance Co. made an error in not paying the $10,000.00. The insurance company established an insurable interest at the time the policy was issued or it would not have issued it in the first place.
Adia and her third cousin had a blood relation, however, not a close relation. The insurable interest would have stemmed from affinity. Adia cared for her elderly third cousin and was concerned about the expenses associated resulting from death including funeral expenses. According to Robert Whitesel with American Family insurance, the policy would not have been issued without first establishing an insurable interest. It could then be concluded that the claim should be paid and the unused premiums should be refunded.