Insurable interest

A right, benefit, or advantage arising out of property that is of such nature that it may properly be indemnified.

In the law of insurance, the insured must have an interest in the subject matter of his or her policy, or such policy will be void and unenforceable since it will be regarded as a form of gambling. An individual ordinarily has an insurable interest when he or she will obtain some type of financial benefit from the preservation of the subject matter, or will sustain pecuniary loss from its destruction or impairment when the risk insured against occurs.

In certain jurisdictions, the innocent purchaser of a stolen car, who has a right of possession superior to all with the exception of the true owner, has an insurable interest in the automobile. This is not the case, however, where an individual knowingly purchases a stolen automobile.

Insurable interest is not dependent upon who pays the premiums of the policy. In addition, different people can have separate insurable interests in the same subject matter or property.

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INSURABLE INTEREST. That right of property which may be the subject of an insurance.
     2. The policy of commerce, and the various complicated rights which different persons may have in the same thing, require that not only those who have an absolute property in ships or goods, but those also who, have a qualified property in them, may be at liberty to insure them. For example, when a ship is mortgaged, and the mortgage has become absolute, the owner of the legal estate has an insurable interest, and the mortgagor, on account of his equity, has also an insurable interest. 1 Burr. 489. See 20 Pick. 259; 1 Pet. 163.