Insurable Interest

Concept

Insurable interest is the legally recognised economic interest a person has in a particular event (the insured event) not occurring, because its occurrence would cause them an economic disadvantage. In indemnity insurance, the existence of an insurable interest at the time of the insured event is a basic precondition for a valid claim to policy benefits; without an interest of one’s own – such as ownership, possession, risk-bearing, or a contractual right of use in the insured property – there is no compensable loss. In sum insurance (life and accident insurance), the economic interest in property is replaced by the insured risk, i.e. the danger to the life or physical integrity of the insured person.

Lapse of insurable interest

If the insurable interest permanently lapses after conclusion of the contract – for example through sale of the insured property, destruction from an uninsured cause, or termination of the underlying legal relationship – cover for that interest generally ends automatically, without the need for termination; a lapse of interest must be distinguished from disposal of the insured property, for which many jurisdictions provide for the automatic transfer of the existing contract to the acquirer.

Relevance for insurance practice

Insurable interest is closely linked to the prohibition of unjust enrichment: it prevents persons without an economic interest of their own in a property or risk from obtaining insurance cover and thereby profiting from a loss suffered by someone else. When concluding a contract and following material changes in a client’s ownership or usage circumstances (sale, inheritance, corporate restructuring), intermediaries should verify whether the insurable interest continues to exist.