Explain Insurable Interest in Insurance Agreements.

Insurable Interest refers to the legal or financial interest that a person or entity has in the subject matter of an insurance policy. This interest must exist at the time the insurance policy is purchased and throughout the policy term. Insurable interest is a basic requirement of any contract of insurance whether life, fire, marine, etc. unless it can be and is, lawfully waived. As a general rule, this means that the party to the insurance contract who is insured or policy-holder must have a particular relationship with the subject matter of the insurance whether that be a life or property or a liability to which he might be exposed. The absence of the required relationship will render the contract illegal or void depending on the type of insurance. An example of insurable interest is a policyholder buying property insurance for their own house but not for their neighbour's house. The person does not have an insurable interest in any financial loss arising from damage to their neighbour's house. For example, if an individual wanted to purchase a home for ₹40,00,000 with a down payment of ₹7,50,000 and took out a mortgage for the rest, the bank would then have an insurable interest in the house of ₹32,50,000. If the borrower pays down the mortgage to ₹10,00,000 and then the home is destroyed in a fire, they would have 75% insurable interest in the home, and the bank would have 25%.