Insurable Interest - the Key Element of Insurance

Abstract

The main idea of this paper is to disclose importance of insurable interest for insurance contracts and to analyse how insurable interest is implemented in Lithuania Law and to find main tendencies of legal practice of Lithuanian courts. Existence of an insurable (lawful) interest is considered as an essential element of valid insurance contract. Contract without insurable interest would be illegal. Without insurable interest any insurance contract would be nothing and would be treated as a wager or gambling act. Insurable interest was established as a main element of insurance contract to put an end to gambling policies often issued on the lives of persons in which the policyholder had no any interest. When we say that someone has an "interest", we usually imply that one's has a financial involvement with them. Insurable interest is the legal right to insure. The doctrine of insurable interest is directly established in the Law on Insurance of Republic of Lithuania and indirectly (rules of double insurance, over insurance are indirect indicators of existence of insurable interest) in the Civil Code of Republic of Lithuania. Insurable interest is defined as a loss that the policyholder, the insured person, or the beneficiary may incur upon occurrence of an insured event. A lawful interest of the policyholder and the insured person which may be expressed in money shall be an obligatory precondition for an indemnity insurance contract. The essentials of insurable interest are: 1) There must be object (life, property, potential liability, rights or financial interest and etc.) capable of being covered; 2) Such an object (life, property, potential liability, rights or financial interest and etc.) must be the subject - matter of the insurance; 3) The insured must be in a legally recognised relationship with the subject - matter of insurance whereby he benefits by its safety or absence of liability and is prejudiced by its damage or destruction or creation of liability. Insurable interest must be material (possibility assess in money), subjective (related to individual person) and lawful.