Insurable Interest
What Does Insurable Interest Mean?
Insurable interest refers to a legitimate concern in securing insurance to protect against potential loss. A person has an insurable interest in their own life, family, property, and business. Without insurable interest, there is no valid foundation for an insurance policy. Therefore, entities that would not suffer a financial loss from a particular event cannot purchase insurance for that event, as they lack the necessary insurable interest.
Insuranceopedia Explains Insurable Interest
For example, you can purchase homeowners insurance for a home you own because any destructive event would result in some financial loss, giving you an insurable interest in the property. Similarly, because you do not own your neighbor’s home, you lack an insurable interest in their property and cannot purchase a policy for it. If you could buy such a policy, it might incentivize you to burn the house down in order to collect the insurance payments, which is why insurable interest is required to prevent fraud. On the other hand, it would not be in your best interests to destroy your own home, as you would directly suffer the loss.
