Insurable Interest

  • The notion of insurable interest dates back to the Middle Ages and it was English common law until the Life Assurance Act of 1774.
  • In that Act the Parliament of Great Britain sought to prevent the abuse of life insurance and differentiate  it from gambling or purely speculative behaviour.
  • It specifically “prohibited the making of any policy on the life of a person by anyone with no interest in the insured life or for gaming or wagering purposes.”14 
  • Today, the speculative behaviour that the Act of 1774 sought to prevent is often associated with financial derivatives that are wrongly equated with insurance.

14 See the 2006 proceedings of the Society of Actuaries under the title “You Bet Your Life.” In that session new forms of life insurance – such as Investor Owned Life Insurance (IOLI), an investment vehicle involving an insured life, a life insurance company, a lender, and investors – were discussed in which insurable interest is either de minimis or entirely absent.

2011 11 - IAIS - Insurance and Financial Stability - 47p