Question

What is insurable interest?

Explain the principle of insurable interest.

Answer 1

1. Insurable interest is an essential element in every insurance contract.
2. Insurable interest means that the insured must be in such a position that he will suffer a primary loss from the happening of the event insured against.
3. A person is said to have an insurable interest in the subject matter insured if its existence benefits him and he suffers a loss from its destruction.
4. Insurable interest is the financial interest of the insured in the subject matter of insurance.
5. For example, a trader has an insurable interest in his goods, and a creditor has an insurable interest in the life of the debtor till the loan is repaid. Thus, insurable interest is the financial interest of the insured in the subject matter of insurance.
6. In the case of life insurance, the insured must have an insurable interest in the insured person's life at the time of taking up the policy.
7. It is not essential that he have an insurable interest at the time of death.
8. In marine insurance, insurable interest must exist at the time of loss, but it may or may not exist at the time of the contract.
9. In fire insurance, insurable interest must exist both at the time of contract and at the time of loss.