Insurable Interest

There's no problem buying fire insurance on your own home. If it burns down, you take the whole loss. But if you try to buy the same policy on your neighbor's house, the insurer won't take it.

If your neighbor's house burns, no money leaves your wallet. And since you only get paid if there's a fire, all you would have is a reason to wait for the fire. If the door is locked to anyone who wouldn't suffer a loss, that strange situation never gets created in the first place.

The property doesn't have to be in your name, though. A renter can insure their own belongings inside a house they don't own, because a fire would destroy their things. A bank that lent money against a house can insure that building too. If the building burns, the bank's repayment is at risk.

So this requirement isn't asking, "Whose name is on the title?" It asks who loses if it happens.

On the surface, gambling and insurance look alike. You pay money up front, and if something happens, you get paid far more than you put in. If it doesn't happen, your money is gone. Both involve money moving on the odds.

They split apart at the next step. Gambling means betting on something that had nothing to do with you, creating profit that wasn't there. Insurance puts back what you lost, returning you to where you started. When a bet ends, someone's pocket is fatter. When insurance works as intended, you're just back to even.

That's why payouts in property insurance have a ceiling. If you could collect more than you lost, the accident would become a profit, and at that moment the contract tips over into gambling. The size of your financial stake sets the height of that ceiling.

One more distinction helps avoid confusion. Insurable interest decides whether you're eligible to make the contract at all. The principle of indemnity decides how much you get paid after an accident.

The moment this requirement is measured depends on the type of insurance. In property insurance, you must be in a position to suffer the loss at the time of the accident. It's best if that's already settled when you sign. At the very least, it should be clear whose interest it is by the time an accident happens.

The Korean Commercial Act says that, in property insurance, only an interest that can be measured in money can be the subject of an insurance contract. But for contracts that cover another person's death, it doesn't apply this requirement in the same way. Instead, it adds a different lock: that person's written consent. If you buy a death policy on yourself, there's no separate consent to collect. Even this lock has exceptions. A death policy on someone under 15, or on someone who lacks mental capacity, is invalid even with consent. And in group insurance, where a company insures its employees, separately set rules can sometimes stand in for individual consent.

The consent rule fills the same seat. Its purpose is to stop someone from quietly betting on another person's life without that person knowing. Countries fill this seat in different ways. Some require a financial stake even for life insurance, while others rely on consent instead.

The lines were also drawn in this order: property came first. In England, the requirement was attached first to insurance on ships and cargo, and the rules for insuring human lives were sorted out later.