The legal principle requiring an insurance policyholder to have a financial interest in the insured item or person is insurable interest.
It exists when damage, loss, or death would cause the policyholder a financial or legally recognized loss. Ownership, possession, a mortgage, a lease, or a close financial relationship can establish that interest. Someone generally has an insurable interest in their own home and vehicle, but not in a stranger’s property.
The principle developed partly to distinguish legitimate insurance from gambling and to discourage people from taking out life policies on unrelated strangers. British legislation, including the Marine Insurance Act 1745 and Life Assurance Act 1774, helped establish the doctrine. The 1806 case Lucena v Craufurd is also influential in its legal history.
Insurable interest is different from indemnity, which limits recovery to the amount of the actual loss, and from subrogation, which lets an insurer pursue a responsible third party. Rules vary by jurisdiction, especially for life insurance.