Definition
Insurable Interest
Insurable interest is the legal requirement that the policyholder stands to suffer a genuine financial loss from the insured event, making the contract valid.
A person has insurable interest in their own life, their spouse's life, and in assets they own or are financially responsible for. Without it, an insurance contract would be a wager and is unenforceable. This is why one cannot insure a stranger's life or property.
In life insurance, insurable interest must exist at inception; in general insurance it must usually exist both at inception and at the time of loss. Business uses, like keyman insurance or a creditor insuring a debtor's life up to the loan, rely on demonstrable insurable interest.
Related terms
- Keyman InsuranceKeyman insurance is a life policy a company buys on the life of a key employee or founder to protect against financial loss from that person's death.
- Indemnity PrincipleThe principle of indemnity ensures an insured is restored to their pre-loss financial position but cannot profit from a claim, applying to general insurance.
- Utmost Good FaithUtmost good faith (uberrimae fidei) is the duty of both parties to an insurance contract to fully and honestly disclose all material facts.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.