insurable interest

In insurance, an insurable interest means the insured must face a personal loss if the insured event occurs. This prevents individuals from insuring property they do not own and profiting from its damage. For example, a lender has an insurable interest in a property they've provided a loan for.1

In life insurance, an insurable interest is generally presumed for one's own life, a spouse, or a child. This interest must exist when the contract is made. For property insurance, however, the insurable interest must exist at the time of the loss, not necessarily at the policy's inception. If property is sold before a loss occurs, the original policyholder cannot collect, as they no longer have a financial stake.12