Why does the company need to know my income, assets, and liabilities?
Insurance is all about appropriately managing risk. In the case of life insurance, that means that a death benefit must correspond to the loss that a beneficiary incurs from the death of the insured. A knowledge of an insured's income, assets, and liabilities often affords insight into just how large a loss his/her death might impose.
Were it otherwise, life insurance would essentially be a gambling racket (and taxes are handled quite differently for commercial gambling.) To grasp this idea, imagine taking out an insurance policy on the beggar who panhandles on the corner of Fifth and Main. He has no assets, and his death would have no financial impact on you, so your insurance policy becomes a game of hoping he dies soon so that you can get the largest return with the smallest investment.
(If you are neither the insured nor the beneficiary, the insurance company isn't interested in your income, assets, and liabilities. It merely needs to ascertain the value that the insured represents to the beneficiary in order to verify that the a policy's face amount is appropriate.)
Sometimes income, assets, and liabilities are not a good indicator of an insurable interest. For instance, homemakers can be insured by their spouses because their deaths represent a significant loss, which can be quantified financially: to pay a professional to perform the duties of a homemaker or child-caregiver would cost many thousands of dollars per year. A spouse and children definitely have an insurable interest in the homemaker, even though the homemaker has no income and his/her assets are shared with his/her spouse. In such case, the insurance company does not require this financial data but rather an explanation of the insurable interest.
