1. What is "insurable interest"?
The party purchasing the insurance must have an "insurable interest" in the insured item/person. Otherwise, the purchaser or other interested party (e.g. the beneficiary) will not be able to enforce a claim under the insurance policy.
The Insurance Claims Complaints Bureau has provided a simple definition of insurable interest for our reference: "A person is regarded as having an insurable interest in something when the loss or damage to the item concerned (the insured item) would cause that person to suffer a financial loss and/or other kinds of loss."
A mere expectation of acquiring an interest in a particular thing will not give rise to an insurable interest. However, provided that an interest is confirmed (e.g. the insured person has entered into a contract and has acquired a future interest in certain goods). that person would have an insurable interest in the subject goods even if he/she has no present enjoyment or possession of the goods.
In the case of life insurance, the party wishing to purchase the insurance covering another person's life must suffer a loss (either
emotional or financial) if the insured person dies. As regards emotional loss, the loss must arise from marriage or the love and affection between a close blood relationship or such other close relationship that could reasonably give rise to love and affection.
If there were no requirement for "insurable interest", then the party purchasing the life insurance could simply be making a wager (gambling) on the life of an insured person who does not have any relationship with the insurance purchaser. Another possibility could be that the party purchasing the life insurance could have sinister motives (e.g. to kill the insured person immediately after buying the insurance and then claim the death benefit).
In the case of most property insurance, the subject item of the insurance is a physical object exposed to the risks of loss or damage. The insurable interest arises from the connection between the party purchasing the insurance and the subject item. The insurance purchaser stands to suffer a loss if the subject item is lost or damaged. For example, if a car is stolen, the car owner would suffer a loss.