What is Insurable Interest?

Full Definition

Insurable interest is a fundamental legal requirement of insurance contracts in the UK, meaning that the person taking out a policy must stand to suffer a genuine financial loss, or some other legally recognised loss, if the insured event occurs -- without it, an insurance contract is generally treated as an unenforceable wager rather than valid insurance, and can even be void from the outset. It exists most obviously and automatically in cases such as insuring your own home, car or life, or a business insuring its own premises and stock, but insurable interest questions can arise in less obvious situations too -- for example, a lender typically has an insurable interest in a mortgaged property up to the value of the outstanding loan, a business can have an insurable interest in the life of a key employee whose loss would cause it financial harm (key person insurance), and family members do not automatically have an insurable interest in each other's lives simply by virtue of the relationship, though UK law does specifically recognise insurable interest between spouses and civil partners, and parents are generally treated as having an insurable interest in insuring their own children. Insurers will ask about the relationship between the policyholder and the insured person or asset partly to check that a genuine insurable interest exists, since a policy taken out without one risks being unenforceable if a claim is later made and challenged.

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