Insurable Interest

The legal requirement that the policyholder stand to lose financially from the insured existence or property.

Overview

The line between insurance and wager, it was pressed by courts and codified in England by the Life Assurance Act of 1774 after wagering on the lives of strangers and public figures became a scandal. Property interest flows from ownership, possession, or legal liability; life interest follows family, creditor debtor, and business relationships such as employer and key employee. Without the requirement, contracts become bets that tempt harm, and courts void policies lacking it. Interest must exist when coverage begins, and in life insurance continues to protect the beneficiary after issue even if circumstances change. It is the first question asked when a policy looks more like a gamble than protection.