Insurable Interest

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Insurable Interest: The first principle of insurance is the principle of insurable interest. Insurable interest has not been defined in any statute. According to Professor Hansell: “Insurable interest is a financial involvement which is able to be insured”. In simple words the assured must have an actual interest in the subject matter of insurance deemed to be known as insurable interest. It means that the insured should stand in such relation to the subject matter of insurance that he suffers loss by its destruction or damage and is benefited by its safety or existence. In view of the nature and definition the following principles emerge out:

i)                    The interest must be lawful; it should not be illegal, unlawful, immoral or opposed to public policy;

ii)                  Simple love and affection over the subject matter of insurance alone cannot constitute insurable interest;

iii)                It must be a right in property which is subject matter of insurance or right arising out of a contract in relation to the property;

iv)                The interest must be pecuniary, i.e., capable of estimation in terms of money. Mere disadvantage or inconveniences or mental distress cannot be regarded as an insurable interest.

v)                  It should not be limited to absolute ownership of property but in other ways also like partial or limited ownership, joint owners, mortgagor and mortgagee, trustee and beneficiary. Even mere lawful possession alone such as lessee, bailee, or carrier of goods or owner of warf or ware house can give insurable interest.

vi)                In life insurance close relationships which cannot be described strictly as pecuniary may also give insurable interest in the life of each other.

 

vii)              In life policies, there are three main groups of relationships where the insurable interest have been recognized: 1) relationship by marriage, blood, or adoption, 2) relationship by contracts and 3) relationship under statutory duty.