The subject matter of insurance contract is not the property as such but the insurable interest of a man in that property. For example, 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 insures. 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. The question as to when insurable interest must exist varies depending on the type of insurance.
When Insurable Interest Must Exist are given as follows :
Marine Insurance : Insurable interest must exist at the time of claim although it need not exist at the time of effecting the policy. However, at the time of starting the policy the insured must prove that he is going to acquire insurable interest soon.
Fire Insurance : Insurable interest must exist both at the time of claim and at the time of starting the policy.
Life Insurance : Insurable interest must exist at the time of effecting the policy and it may not exist at the time of claim. For example, if a creditor takes out a policy on the life of a debtor and subsequently the debtor pays back the loan, nevertheless the creditor can continue the policy as per original terms and shall be entitled to sum assured either on death of the debtor or on maturity, even though at the time of claim there existed no insurable interest.
Accident Insurance : Like fire, insurable interest must exist both at the time of effecting the policy and the time of claim. It should be remembered that in the absence of insurable interest the contract shall be void ab-initio.
Therefore, it is the duty of the underwriters to see the position of insurable interest at the time of issuance of the policy and similarly it is the duty of the Claims Manager to see the position of insurable interest at the time of settling a claim.