Insurable Interest of the Insured in His Own Life

It is a well accepted principle of law that every man possesses an insurable interest to an unlimited extent in his own life, and that he may make his insurance payable to any person he chooses to name as beneficiary. In this respect life insurance affords a striking contrast to fire and other forms of property insurance. Fire-insurance policies, for example, are contracts of indemnity and the company's liability is limited to the value of the property at the time of the fire, i.e. the face of the policy, owing to depreciation of the property or other causes, is not necessarily the sum that will be paid when a total loss of the property occurs. Life-insurance contracts, however, are not regarded purely as contracts of indemnity, and in cases where the insurance is taken out by the person whose life is insured, the courts have refused to establish any degree of relationship between the amount of insurance and the value of the life on which it is taken. The position of the courts in this matter is summarized by Richards as follows:

Every man's life is presumed to be valuable to himself, therefore, whenever the insured takes out a policy on his own life, whether payable to himself, his estate or other beneficiaries of his own selection, until it is affirmatively shown that he entered into the contract with the purpose of hastening his death, or evading the law, the usual love of life is held by the better authority to satisfy the legal demand for evidence of a sufficient insurable interest. Accordingly, every man is said to have an insurable interest in his own life and to any amount. But when the insurance is taken out by a person other than the life insured, the problems presented are not always so easy of solution and the rules relating to insurable interest become more or less arbitrary.

It has been held, however, that, if the beneficiary has an insurable interest, the party taking out the insurance need have none. And similarly it has been held that if only one of the beneficiaries has an insurable interest the policy will not be avoided. The doctrine of the necessity of an insurable interest has not been adopted for the benefit of the insurance company, but out of regard to the public welfare.