Insurable interest is the insurance principle requiring a policyholder to have a financial or other recognized stake in the insured subject.
The principle prevents insurance from becoming a wager on someone else’s property or life. A person normally has insurable interest in their own home, business, or life, while a lender may have an interest in property securing a loan. The interest must be recognized by law and connected to a possible loss.
In property insurance, the interest usually exists because damage would cause the policyholder an economic loss. In life insurance, people generally have an interest in their own lives, and certain family or business relationships may also qualify under applicable law. Rules differ between jurisdictions and policy types.
Insurable interest is not the same as utmost good faith, which concerns honest disclosure, or indemnity, which concerns compensation for loss. It also differs from subrogation, where an insurer may pursue a responsible third party after paying a claim.