Q: What is the definition of “insurable interest,” and when does it apply?

Response 1: The International Risk Management Institute defines insurable interest as “an interest by the insured person in the value of the subject of insurance, including any legal or financial relationship. Insurable interest usually results from property rights, contract rights, and potential legal liability."

That should be a reliable definition for your purposes, but here's another one from a legal dictionary: “A person is usually regarded as having an insurable interest in the subject matter insured when he will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction."

Response 2: In general, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. For more detail, check out the case Crook v. Hartford Fire Ins. Co., 175 S.C. 42, 48 (S.C. 1934).

Response 3: Any interest where the loss of the property would cause damage to the person.

Response 4: Generally, insurable interest refers to property insurance—not liability insurance. Look to your state’s insurance code for a precise definition, which might include inchoate interests.

Response 5: This is a great and debatable question. Barron's Dictionary of Insurance Terms defines it as an "expectation of a monetary loss." This definition would provide coverage if the cause of the loss is covered by the policy. It may include damaged property, loss of use and other financial losses caused by the damaged property and covered peril.

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