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What is insurable interest in life insurance? [2024]

Insurable interest is very common in life insurance.

Did you know that

Did you know that the percentage of Americans with life insurance is about 52%, including individual and workplace life insurance? (source)


forget about that!

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let’s get back to the point!

A beneficiary-owner (a person, trust, or business) must demonstrate an insurable interest in or financial dependency on the insured in order to obtain a life insurance policy on that individual.

What does the term insurable interest in life insurance mean?


I have read a lot of online sources that tried to explain what is an insurable interest in life insurance.

To my surprise, none of those sources explained the concept in a simple and understandable way.

Most of them failed to break things into small substances that are easy to swallow!

So I decided to write this post to tackle that challenge.

Here I will tell you everything you need to know about insurable interest in life insurance in simple and understandable terms, specifically, I will cover;

  • What is an Insurable Interest in life insurance?
  • Example of insurable interest
  • How Insurable Interest in Life Insurance is Tested
  • Significance of Insurable Interest in Life Insurance

What is an Insurable Interest in life insurance?

Insurable interest simply means an interest that can be quantified in monetary value.

In Technically terms an insurable interest is a legal or equitable right or benefit, acquired when the insured object is damaged, detriment or prejudice suffered, on the happening, or non-happening of the peril insured against.

So a person has an insurable interest in another person if he will be financially affected by the loss of that person.

For example, the following people would typically be regarded as having an insurable interest in your life, though state laws can vary.

  • Yourself
  • Your partner or ex-partner
  • Your grandchildren or offspring
  • a grown child with unique needs
  • an elderly parent (s)
  • Employer (under certain arrangements)

To open the pandora, insurable interest in life insurance is the relationship that exists between the insured and the potential beneficiary.

Still confused?

consider the example below

Example of insurable interest

You get life insurance to ensure that, in the event of your untimely passing, those who rely/depend on you the most won’t face financial hardship.

Therefore the relationship/dependency-(son, aged parent, spouse, etc.) that exists between you and the potential beneficiary is an insurable interest.

In the next section, you will learn more about how that relationship/insurable interest between the insured and beneficiary is tested.

Another example;

If the house you own is damaged by fire, The value of your house has been reduced by the damages sustained in the fire.

Whether you pay to have the house rebuilt or you end up selling it at a reduced price, you have suffered a financial loss resulting from the fire.

By contrast, if your neighbor’s house, which you do not own, is damaged by fire, you may feel sympathy for your neighbor and you may even be emotionally upset, but you have not suffered a financial loss from the fire.

You have an insurable interest in your own house, but in this example, you do not have an insurable interest in your neighbor’s house.

Thus, that ownership is an insurable interest.

If the insured wishes to enforce a contract of insurance before the Courts, he must have an insurable interest in the subject matter of the insurance, which is to say that he stands to benefit from its preservation and will suffer from its loss.

The insurable interest is a must in any insurance contract and if there is no insurable interest the insurance contract is void and hence the insured cannot claim back the premium paid.

How Insurable Interest in Life Insurance is Tested

To determine whether there is an insurable interest in life insurance. The following things are considered.

  1. Direct legal or equitable relationship between the insured and the beneficiary or subject matter. For example; the insured may be the owner, children, parent, or spouse.
  2. That the said legal or equitable relationship or subject matter existed at the time of the loss
  3. That the said right or liability is capable of being evaluated in monetary value
  4. if the property had continued to exist then it would benefit the insured in one way or another, while its destruction would economically inconvenience the insured.

Significance of Insurable Interest in Life Insurance

Life insurance helps the insured person to be fair in inheritance issues;

Example of a man who owns a small law firm he wants to leave for his daughter who is also a lawyer. He also has two sons, but they decided to become teachers, so they have no real interest in running a law firm. But the man wants to be fair to his sons, and he knows the law firm is his largest asset. So he will purchase a life insurance policy that names the two sons.

This policy actually buys them out of any interest in the law firm.  Therefore the law firm owner has used his coverage in order to distribute his assets fairly to all children whereas a life insurance policy can provide a buyout option for the other surviving children when only one child will inherit a business.

The case of Griffiths v. Fleming  [1909] 1KB 850 was a case concerning life insurance.

A person has an insurable interest in his own life.

A husband and wife have insurable interests in each other lives etc. as provided under the law. Therefore failure to establish some pecuniary loss likely to be sustained by the claimant on the death of the person whose life is insured will fail in that claim.

Life insurance is affected as a means of protection for the dependents and savings, the idea of indemnity is foreign to it


This post explained the meaning of insurable interest in life insurance and it simply shows that Insurable interest is an interest that can be quantified in monetary value.

Further, it explained the circumstances for the existence of an insurable interest in life insurance, the test of insurable interest in life insurance, and the significance of insurable interest in life insurance.


Massawe M, et al(2012) Basics of Commercial Law in Tanzania, Karljamer Print Technolgy

Raoul C, (1970), The Law of Insurance, 3rdEd, Sweet, and Maxwell, London.

Sleem N.A  &  Ateenyi T.K, (1992), General Principle of Insurance Simplified, N.A Saleem Publishers, Nairobi, Kenya.

See also

Isack Kimaro
Isack Kimaro

Isack Kimaro, a lawyer, Creative Writer and self-taught SEO expert has been a prominent author of law-related topics since 2017. Through hard work, dedication, and a relentless pursuit of knowledge, Isack has successfully navigated the legal industry by providing valuable and easy-to-understand legal information to 500,000+ individuals of all levels of understanding.