What is insurable interest?

Insurable interest is a fundamental principle in insurance that refers to the relationship between the insured and the subject matter of the insurance policy. Specifically, it means that the policyholder must have a legitimate stake in the property or life being insured. This interest can manifest as ownership or a financial connection, ensuring that the policyholder would suffer a financial loss if the insured item is damaged or destroyed.

Having insurable interest is a legal requirement that helps prevent insurance fraud by ensuring that the policyholder has something to lose. This concept is essential for the validity of an insurance contract; without it, the contract could be deemed void because there would be no legitimate reason for the policyholder to take out insurance on the item or individual.

By establishing a direct link between the policyholder and the insured property, this ensures that the insurance serves its intended purpose: to provide protection against genuine risk of loss.