CHAPTER 49: INSURANCE 221with the coverage offered. Through the extensive correlation of data over a period of time, insurers can esti-mate fairly accurately the total amount they will have to pay if they insure a particular group.3.Can anyone claim to have an insurable interest in a particular person or property? No, because such a stateof affairs would permit anyone to take out an insurance policy on any person or property and essentially wageras to when that person would be injured or killed or that property destroyed. One can take out a policy only ifone has an interest either in a person’s life or well-being or property that is sufficiently substantial thatinsuring against injury to the person or damage to the property does not amount to a gambling activity.4.Who may be insured by a key-person insurance policy? Key person insurance is usually taken out by an or-ganization that wishes to insure the life of a person who is important to that organization. The organizationhas an insurable interest in that person (who is usually an employee, officer or director of the company) becauseit expects to receive some pecuniary gain from the continuation of the key person’s life or suffer some financialloss from the key person’s death.5.How is the effective date of an insurance policy usually determined? Coverage on an insurance policy canbegin when a binder is written, when the policy is issued or, depending on the terms of the contract, after acertain period of time has elapsed. Alternatively, the parties may agree that a life insurance policy will bebinding at the time the insured pays the first premium or the policy may be expressly contingent upon the ap-plicant’s passing a physical examination. Because the insurance policy is essentially a contract between theinsured and the insurer, the parties have great freedom to set the particular terms and conditions that will gov-ern the effective date of the policy.6.In what circumstances may an insurer cancel a policy? An insurance company can cancel an insurancepolicy—after giving the appropriate notice to the insured—for a variety of reasons including (in the case of autoinsurance) the nonpayment of premiums or the suspension of the insured’s driver’s license or (in the case ofproperty insurance) the insured’s fraud or misrepresentation or gross negligence or (in the case of life andhealth insurance) the making of false statements by the insured in the application. Cancellation can only takeplace, however, before the effective date of an incontestability clause.