The requirement of insurable interest gives legal validity to insurance contracts and distinguishes them from wagers. It may be defined as the legal right to insure, where the right arises out of a pecuniary relationship between the insured and the subject matter of insurance. The destruction or damage to the latter involves the insured in financial loss. Absolute legal ownership is a clear example of insurable interest.
For e.g, a bank or a financial institution which has advanced money on the security of a property, has insurable interest in that property. In Fire insurance policy, the insurable interest should exist at the time of taking the policy, throughout its currency period and also at the time of loss/claim. Fire insurance policies are personal contracts, so if the property is sold or transferred, the policy is not transferred automatically.
Extracts from “Guide for Fire Consequential Loss Insurance (IC-57)” by Dr. Rakesh Agarwal. Copyright of Sashi Publications, kolkata www.sashipublications.com and www.bimabazaar.com
