Insurable Interest Definition

Insurable Interest refers to the financial or other interest that an individual or entity has in the subject matter of an insurance policy. In insurance terms, the policyholder must demonstrate that they would suffer a financial loss or other hardship if the insured property were damaged, destroyed, or otherwise affected by the insured risk. For example, in property insurance, a homeowner has an insurable interest in their house because they would incur financial losses if the property were damaged by fire or other covered perils.

Similarly, in life insurance, a person can insure their own life or the life of a dependent because they would experience financial hardship in the event of death. Insurable interest is a fundamental principle in insurance contracts, ensuring that policies are issued for legitimate reasons and preventing individuals from profiting from insurance claims unrelated to their actual financial losses. It helps maintain the integrity of insurance transactions by aligning the insured risk with the policyholder’s financial exposure and legitimate need for protection.