Insurable Interest in Insurance

For an insurance contract to be void, the insured must possess an insurable interest in the subject matter of insurance.

The insurable interest is the pecuniary interest whereby the policy-holder is benefited by the existence of the subject-matter and is prejudiced death or damage of the subject matter.

The essentials of a valid insurable interest are the following:

  1. There must be a subject-matter to be insured.
  2. The policy-holder should have monetary relationship with the subject-matter.
  3. The relationship between the policy-holders and the subject-matter should be recognized by law. In other words, there should not be any illegal relationship between the policy-holder and the subject-matter to be insured.
  4. The financial relationship between the policy-holder and subject-matter should be such that the policy-holder is economically benefited by the survival or existence of the subject-matter and or will suffer economic loss at the death or existence of the subject-matter.

The subject-matter is life in the life insurance, property and goods in property insurance, liability and adventure in general insurance.

Insurance interest is essentially a pecuniary interest, i.e., the loss caused by the happening of the insured risk must be capable of financial valuation.

No emotional or sentimental loss, as an expectation or an anxiety, would be the ground of the insurable interest.

The event insured should be one that if it happens the party suffers financially and if it does not happen, the party is benefited by the existence.

But a mere hope or expectation, which may be frustrated by the happening of some extent, is not an insurable interest.