To understand any concept it helps to know the purposes it serves and the objectives it seeks to achieve. The maxim that one "must have an insurable interest in the life or property insured" has haunted insurance law for centuries. This doctrine conditions both the validity and enforceability of insurance contracts upon the existence of an insurable interest in the person who purchases the policy. The considerations which underlie the insurable interest requirement are generally expressed in terms of public policy: (1) against allowing wagering contracts; (2) against fostering temptation to destroy the insured property or life in an effort to profit from it; and (3) favoring limitations upon the sweep of indemnity contracts. These considerations also serve the interest of the insurer in several ways. First, they eliminate the risk of moral hazard by conditioning the validity and enforceability of the contract upon the existence of a valid interest in the subject matter of the policy. Second, they legitimate the desire of the insurer to provide insurance only for the benefit of individuals who have an interest in the subject of the contract, thus lessening the likelihood of adverse selection. The force of these policy objectives is reflected in the rule that only the insurer may raise lack of an insurable interest as a defense.
Johnny C. Parker,
Does Lack of an Insurable Interest Preclude an Insurance Agent From Taking an Absolute Assignment of His Client's Life Policy?,
U. Rich. L. Rev.
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