Principle of Insurable Interest

The legal right to insure arising out of a financial relationship recognized under the law, between the insured and the subject matter of insurance.
The existence of insurable interest is an essential ingredient of any insurance contract. It is an important and fundamental principle of insurance. Insurable interest simply means “right to insure”. The policyholder must have a pecuniary or monetary interest in the property, which he has insured. The subject matter of insurance can be any type of property or any event that may result in a loss of a legal right or creation of a legal liability. Therefore the essentials of insurable interest include: There must be some property, right, interest, liability or potential liability capable of being insured. It is this property, right etc, which must be the subject matter of insurance.

The insured must stand in a relationship with the subject matter of insurance whereby he benefits from its safety, well being or freedom from liability and would be prejudiced by its loss, damage or existence of liability.

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