INSURABLE INTEREST

Section 10. Every person has an insurable interest in the life and health:

(a) Of himself, of his spouse and of his children;

(b) Of any person on whom he depends wholly in part for education or support, or in whom he has a pecuniary interest;

(c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, Of which death or illness might delay or prevent the performance; and

(d) Of any person upon whose life any estate or interest vested in him depends.

What is insurable interest?

Insurable interest is one the most basic of all requirements in insurance.  In general, a person is deemed to have insurable interest in the subject matter insured where he ha a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against.

Why must there be an insurable interest?

It is essential for validity and enforceability of the contract or policy.  A policy issued to a person without interest in the subject matter is a mere wager policy or contract.

When is there insurable interest in life insurance?

In life insurance, Insurable interest exists where there is reasonable ground founded on the relations of the parties whether pecuniary, contractual or by blood or affinity, and to expect some benefit or advantage from the continuance of the life of the insured.

Problem:

A takes an insurance policy on his life and names his friend X as beneficiary, and another insurance on the life of Y in consideration of “love and affection”  with A as a beneficiary.  Which of the two insurances, if any, is valid and which, if any, is void?

The Insurance taken on A on his life is VALID, because the beneficiary need not have an insurable interest in the life of the insured.  It must be the one insuring who has an insurable interest in the life of the person he is insuring, and of course, it goes without saying that one has an insurable interest in his own life and health.

ON the other hand, the insurance taken by A on the life of Y is VOID because “love and affection for the insured” n the part of the person insuring is NOT sufficient ground to qualify as insurable interest.