What is a key requirement under the Life Assurance Act 1774 regarding insurance policies?

The correct answer emphasizes the essential principle of insurable interest, which is a fundamental requirement established by the Life Assurance Act 1774. Under this act, it is necessary for the beneficiary of a life insurance policy to have an insurable interest in the life assured. This means that the beneficiary must be financially or emotionally affected by the death of the insured person. The rationale behind this requirement is to prevent insurance contracts from being used for immoral purposes, such as wagering on someone's life. If a beneficiary does not have an insurable interest, it could lead to situations where the policy becomes a speculative bet rather than a legitimate insurance arrangement.

In contrast, other options do not align with the key components of the Life Assurance Act 1774. The requirement for the insurer to have a financial stake is not a fundamental rule stipulated by the act; rather, the focus is on the beneficiary's interest. Annual reviews of policies are generally part of best practice in the insurance industry but are not mandated by this specific legislation. Lastly, while there may be age-related rules governing who can be insured or who can take out a policy, the act does not specifically state that the insured must be over 18 years old as a key requirement. Thus, the emphasis on ins