3. Explain the Concept of “Insurable Interest” | Eastern Kentucky University - Edubirdie

University:
Eastern Kentucky University
Course:
LGS 300 | Introduction to Legal Studies
Academic year:

2022
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121

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1
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kundgetanufv

3. Explain the concept of “insurable interest”. Insurable interest refers to the legal or financial interest a person has in the subject matter of an insurance policy, such that they would suffer a direct loss if the insured event occurs. In other words, the insured must stand to benefit from the continued existence of the thing or person insured, and suffer prejudice if it is lost, damaged, or harmed. Key Elements of Insurable Interest:     Lawful Relationship: The interest must arise from a legally recognized relationship — such as ownership, contract, or family duty. Financial/Proprietary Nature: The insured must stand to suffer pecuniary loss. Must Exist at the Time of Loss: In non-life insurance, insurable interest must exist at the time the loss occurs (e.g., fire, theft). In Life Insurance, insurable interest is generally required at the time the policy is taken out, not necessarily at death. Legal Justification for the Rule: The requirement of insurable interest ensures that:   The insured has a legitimate reason to insure the subject matter, Insurance is not used as a form of gambling or wagering, which would render the contract void. Examples of Insurable Interest: You insure your own car Yes You insure your spouse’s life You insure a stranger’s house A bank insures a bonded property Yes An employer insures a key employee Yes No Yes You own it and would suffer financial loss if it's damaged A family and financial relationship exists No legal or financial connection The bank has a financial interest through the mortgage The loss of the employee may cause financial harm to the business. Case Reference: While South African courts have not always applied a strict definition, the concept was influenced by English law, particularly: Lucena v Craufurd (1806) 2 Bos & Pul (NR) 269 Defined insurable interest as “a right in the property, or a right derivable out of some contract about the property, which in either case may be lost upon some contingency affecting the possession or enjoyment of the party.”

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