Everyone who has an insurable interest in something is entitled to insure it against any risks that may occur. To have an insurable interest we must be in danger of suffering some loss or incurring some liability should the thing concerned be destroyed or damaged in any way. If we shall not suffer loss or incur some liability then we may not insure; if we do we shall waste our premium because under no circumstances will we be allowed to receive money from the pool.
It is therefore perfectly all right to insure my own house, furniture, motor car, jewellery, etc. because I will suffer loss should they be destroyed, damaged or stolen. I can insure my own life, or my wife’s life, or even the life of the man who manages my business. It would be quite wrong to insure someone else’s house, furniture, motor car, jewellery, etc. because I have no real interest in it, and will suffer no loss if it is damaged or stolen. I cannot insure Henry Tan house and claim money if it is burned down. If this were allowed I might just be tempted to help it burn down. Of course very few people do commit crimes, but if crime of this sort were encouraged, even if only by a small amount, it would be very unpleasant for the victims. It is therefore ‘against public policy’ to permit to insure without an insurable interest.
Therefore to simplified the whole meaning of insurable interest, let me point out to you that it is illegal for persons or firms to take out insurance against risks which do not directly affect them. In general, when the insured makes a claim under an insurance policy he must first have to suffered some kind of loss himself. A man can insure his own property against fire or burglary, but not the house of a friend or neighbour. The insured must have an insurable interest in what he insures.
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