Insurable interest Show
Produced in partnership with Dr Franziska Arnold-Dwyer of Centre for Commercial Law Studies at Queen Mary University of LondonThe following Insurance & Reinsurance practice note produced in partnership with Dr Franziska Arnold-Dwyer of Centre for Commercial Law Studies at Queen Mary University of London provides comprehensive and up to date legal information covering:
This Practice Note considers insurable interest, including insurable interest in construction and liability insurance. It also considers insurable interest in subrogation, co-insurance and double insurance and the Insurable Interest Bill. What is insurable interest?‘Insurable interest’ refers to a doctrine of insurance contract law that requires the insured to have a relationship with the insured subject-matter that is recognised by law. Broadly speaking, only persons who have some relation to the subject-matter of the insurance contract, by reason of which they would be prejudiced by its loss, or may incur liability in respect thereof, can insure that subject-matter. Conversely, a person who has no such relationship cannot take out insurance on that subject-matter. The burden rests on the insured to prove an insurable interest exists. The historic rationales for requiring an insurable interest are that:
The anti-wagering rationale remains of great significance in the context of differentiating between insurance contracts
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Own life and life of spouse Natural affection enables an individual to insure his/her own life, or the life of his/her spouse. The class is therefore extremely limited. Anyone who falls within these classes of natural affection will not need to prove that they have a pecuniary interest recognised by law in the life insured. In cases of interest established by natural affection, there is no legal limit on the sum insured. Other family relationships Other family relationships do not - in the absence of potential financial loss, or statutory provision - give rise to a right to insure. In English law there is no general right for children and parents to insure each other's lives. There is no insurable interest based on natural affection between siblings, persons related by marriage or between cousins, nephews, nieces, uncles or aunts. In Scots law, the obligation of aliment gives rise to an insurable interest in certain relationships where none exists in England or Wales. English law A child who is a minor could suffer a financial detriment on the death of a parent. However, there is no general statutory right under English law for children to receive maintenance from their parents. An insurance policy taken out by a child on a parent's life would require some sort of specific obligation on the parent (e.g. a maintenance order). Likewise, a parent does not have an insurable interest in the life of a child. In England and Wales, children have no legal duty to maintain their parents and parents have no insurable interest in the life of their offspring on the grounds of natural affection. The position in Scots law In Scots law aliment is a maintenance obligation to "provide such support as is reasonable in the circumstances". The Family Law (Scotland) Act 1985 provides that the obligation of aliment is owed only by:
For the purposes of establishing insurable interest, a child will have an insurable interest in the life of their parents to the value of the obligation of aliment. The duty of aliment ceases when the child reaches 18 years of age, or 25 years of age if in education or training for a trade, profession or vocation. The insurable interest will exist only for as long as the obligation of aliment is owed. This applies equally to a child accepted as a child of the family. A child owes no obligation of aliment to their parent; therefore, in Scotland as in England and Wales, a parent has no insurable interest in the life of their child. As spouses and civil partners are presumed by law to have an unlimited insurable interest in the lives of each other, the obligation of aliment has no additional effect for establishing an insurable interest. Cohabitants and fiancé(e)s In the absence of any pecuniary and legal interest, there is no right to insure the life of a cohabitant. Nevertheless the Insurance Ombudsman has indicated that he would enforce such contracts. Fiancé(e)s have no interest in each other's lives. However, the Insurance Ombudsman stated that he would allow an engaged couple to have an insurable interest in each other's lives on the grounds of natural affection. In which type of insurance insurable interest is not essential?If insurable interest is not required, the contract would be gambling contract and would be against public interest. For example you can insure the property of another and hope for an early loss. One can similarly insure the life of another person and hope for an early death.
Which of the following individuals must have insurable interest?In the case of a life insurance policy, the owner of the policy must always have an insurable interest in the life of the insured. Also, if the owner of the policy is not the beneficiary then the beneficiary named in the contract would also need an insurable interest in the insured person.
What is not insurable interest?People not subject to financial loss do not have an insurable interest. Therefore a person or entity cannot purchase an insurance policy to cover themselves if they are not actually subject to the risk of financial loss.
When must there be an insurable interest in the life insured?A beneficiary can be a person or a business. In any case, a beneficiary must have an insurable interest in the person who is being insured if they are purchasing insurance on that person's life.
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