Insurable Interest

An insurable interest is present when a person will suffer prejudice, damage or loss if a subject matter is lost or destroyed and that person receives financial benefits from the maintenance and preservation of the subject matter because he is so connected, related or in any way circumstanced to it. This forms the cornerstone of the contract of insurance. Everybody has an insurable interest in the life and health of the following:

1.) Himself, his spouse and children

2.) Anyone he is partly or fully dependent on for support or education or in whom he has a financial interest

3.) A person who is legally obliged to pay him or deliver property or services if death or illness will prevent or delay delivery/payment.

4.) Anybody on whose life any estate or interest vested in him depends

There is no limit to the amount an insured person can use to insure his life because the law admits that human life can't be estimated in a monetary  form. The exception is in that of a creditor-debtor relationship if the creditor insures the life of the debtor. The amount, however, is limited only to the amount of the debt.

Insurable interest in life must exist at the time the policy becomes effective but doesn't need to exist at the time of the loss. It is unlimited except if a creditor insured the debtor; in that case the amount is limited only to the amount of the debt. The expectation of benefit to be derived from the continued existence of life doesn't need any legal basis; a reasonable probability is enough.

There is also insurable interest in property. For insurable interest in property to be effective, it must exist at the time the policy takes effect and when the loss takes place (but doesn't necessarily have to exist in between the taking of effect and the loss!) It is limited to the actual or predetermined value of of interest in the insured property. There must be a legal basis for the expectation of a benefit coming from the property's continued existence. An insurable interest in property will consist of the following:

1.) An existing interest

2.) An inchoate interest based on an existing interest

3.) An expectancy together with an existing interest which causes the expectancy (like a farmer's interest in the future harvest of his farm.)

Friendship doesn't constitute insurable interest.