Three Essentials Of Insurable Interest

Principle of insurable interest asserts that only the person who has insurable interest on a subject-matter of insurance can insure that particular subject-matter. It is not possible to affect an insurance policy on a subject-matter by somebody who has got no insurable interest on that subject-matter.

Insurable interest is nearly a legal right to insure. It is the legal financial interest of a man on a property, the interest being such that by the safety of the subject-matter he is benefited, by the loss, damage or destruction thereof he is prejudiced. In fact, before the promulgation of certain Acts by English Parliament, it was not necessary to have insurable interest for the purpose of affecting a policy of insurance.

The following are the Essentials Of Insurable Interest:

  1. There must be property rights, interest, life, limb or potential liability devolving upon the insured capable of being covered by a policy of insurance.
  2. Such property, right, life, limb, interest or liability must be the subject-matter of insurance.
  3. The insured must bear such relationship, recognized by law, to that subject-matter of insurance whereby he benefits by the safety of that subject-matter.

Subject-matter of insurance is nothing but the property that is being insured. For example, it is life in life insurance, factory, machinery, stock, house, building etc. In fire insurance, ship, cargo etc. In marine insurance and so and so forth. But the subject-matter of insurance contract is indeed not the property as such but the insurable interest of a man in that property.

That means, in a fire policy it is not the bricks or materials or the house itself that a man insures, in fact it is the interest of the man in that house that he insure. Insurable interest is established by ownership, possession, or direct relationship.For example, you may have insurable interests in your own properties but not in your neighbors’ properties, and certainly not of strangers.

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