What is meant by the term "Insurable interest" ?
Marine insurance act defines the "insurable interest" as
i) every person has an insurable interest who is interested in a marine adventure.
ii) In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.
Let us simplify this.
If a car owner takes two car insurance covers for the same car, can he be considered to have interest in his car ? No. He will benefit if the car is lost, damaged or destroyed.
This is also the case if the car owner has only one insurance but insurance value is more than the present value of the car.
The idea of insurable interest is that insured should suffer a financial loss with the loss or damage to the property or risk insured. In case of ship that left for a voyage, it should be of more benefit for the ship owner if the ship completes the voyage safely than if she does not.
There have been cases where insurance company refused to pay the compensation claiming that ship was deliberately sunk by the ship owner.
In these cases the insurance company would claim that ship owner had no insurable interest in the ship.
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