An “insurable interest” means an interest (financial or otherwise) in the subject matter of a contract of insurance, which provides the insured with the right to enforce the contract.
A person who would suffer pecuniary loss if property was destroyed could be said to have an insurable interest in the property. If no insurable interest exists, then the contract of insurance is void.
The amount of the insurable interest is the amount of the pecuniary loss which the insured would suffer as a result of the occurrence of the event insured against, for example, loss or damage to a house cause by fire.
An owner has an insurable interest in his own property, for example, his house or car. Where the ownership has been transferred to a buyer, the seller would no longer have an insurable interest in the subject matter.
A creditor is also regarded as having an interest on the life of his debtor to the extent of the debt.
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In life assurance, a person has an insurable interest in his own life and limb. In addition, section 152(2) of the Insurance Act 1996 states that:
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"A person shall be deemed to have insurable interest in relation to another person if that other person is –
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- his spouse, child or ward being under the age of majority at the time the insurance is effected;
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- his employee; or
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- notwithstanding paragraph (a), a person on whom he is at the time of the insurance is effected, wholly or partly, dependent. "
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