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Concept of insurable interest in
INSURABLE
INTEREST
A legal relation between the insured or
assured and the contingent event sought to
be insured against, the occurrence of which
will result to loss, destruction, injury or harm
to the insured
AN INTEREST TO BE INSURABLE MUST
HAVE A PECUNIARY VALUE
3 4
interest does not necessarily imply a right to the
whole or a part of the thing. To have an interest
in the preservation of a thing is to be
circumstanced with respect to it as to have
benefit from its existence and prejudice from its
destruction.
A policy issued to a person without interest in the
subject matter is a mere wager policy or contract
and is void.
5 6
general
a person is deemed to have an insurable interest
in the subject matter insured where he has a
relation or connection with or concern in it that he
will derive pecuniary benefit or advantage from its
preservation and will suffer pecuniary loss or
damage from its destruction, termination, or injury
by the happening of the event insured against
THERE MUST BE A REASONABLE
GROUND, FOUNDED UPON THE
RELATIONS OF THE PARTIES TO EACH
OTHER, either pecuniary or of blood or
affinity, to expect some benefit or advantage
from the continuance of live of the assured
Reason for the requirement of
insurable interest
The requirement of an insurable interest to support a contract of
insurance is based upon considerations of public policy which
render wager policies invalid.
A wager policy is obviously contrary to public interest. It is
demoralizing in that:
It allows the insured to have an interest in the destruction of
the subject matter rather than its preservation
It affords a temptation or an inducement to the insured,
having nothing to lose and everything to gain, to bring to
pass the event upon the happening of which the insurance
becomes payable.
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In Life / Health (Sec. 10-12)

Sec 10. Every person has an insurable interest in the
life and health: Sec. 10 provides the TEST OF PRESENCE OF
a. Of himself, of his spouse and of his children; INSURABLE INTEREST. Said section does not
b. On any person on whom he depends wholly or in part require the consent of the person being insured
for education or support, or in whom he has a
pecuniary interest; for the policy to be effective. The policy is valid as
c. Of any person under a legal obligation to him for the long as the presence of insurable interest can be
payment of money, or respecting property or services adequately shown.
of which death or illness might delay or prevent the
performance; and,
d. Of any person upon whose life any estate or interest
vested in him depends. 7 8

GR:
Every person has an unlimited insurable
interest in his own life whether the insurance
Insurance upon ones own life - taken
is for the benefit of himself or another; and it
out by the insured upon his own life for is not at all necessary that the beneficiary
the benefit of himself, or of his estate, in designated in the policy should have any
case it matures only at his death, or for interest in the life of the insured.
the benefit of a third person who may be
designated as beneficiary.

9 10

An exception to the general rule exists in cases

in which the court finds that a wagering policy
has been taken out by the insured on his life at
the behest of a third person who is named as IS IT NECESSARY THAT THE BENEFICIARY
beneficiary. Evidence of a wagering policy is MUST HAVE AN INSURABLE INTEREST IN THE
usually found in such facts as: LIFE INSURED?
That the original proposal to take out NOT NECESSARY!
insurance was that of the beneficiary;
That premiums are paid by the beneficiary
That the beneficiary has no interest,
economic or emotional in the continued life of
the insured.
11 12

2

There is no need for pecuniary benefit in the ff cases bec
Insurance upon the life of another
When one applies for insurance on the
life of another for the formers benefit, he
must have an insurable interest in the
life of that person.
13
When pecuniary benefit is essential:
Relationship by affinity
The assumption of parental relations when a man
sends a girl to school and pays her expenses
A corporation in the life of an officer whose
services the corporation depends for its prosperity,
and whose death will be the cause of substantial
pecuniary loss to it
On the life of a business partner
15
Insurable interest of creditor in life of his
debtor
A creditor may insure his debtors life for
the purpose of protecting his debt but only
to the extent of the amount of the debt and
the cost of carrying the insurance on the
debtors life.
The insurance does not inure to the benefit
of the debtor unless, the contrary is
expressly stipulated.
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theses are required to support each other:
Spouse; legitimate ascendants and descendants;
Parents and their legitimate children and the legitimate or
illegitimate children of the latter
Legitimate brothers and sisters, whether full or half-blood
Brothers and sisters not legitimately related whether full or
half-blood are likewise bound to support each other
EXCEPT ONLY when the need for support of the brother
or sister, being of age, is due to a cause imputable to the
claimants fault or negligence.
14
In the case of employees, insurable interest
is dependent upon the value of the
employee to the business. One who could
be easily replaced would hardly be one in
whom the employer could reasonably claim
insurable interest
16
It follows that the insuring creditor could only
recover such amounts as remain unpaid at
the time of the death of the debtor. If the
whole debt has already been paid, then
recovery on the policy is no longer
permissible.
18
3

Sec 11. The insured shall have the right to
change the beneficiary he designated in the
policy, unless he has expressly waived this right
in said policy. Notwithstanding the foregoing, in
the event the insured does not change the
beneficiary during his lifetime, the designation
shall be deemed irrevocable.
19
Death caused by the beneficiary?
However, where the death of the insured
was caused under circumstances as do not
amount to a felony as when the killing was
accidental or in self-defense, or where the
beneficiary was insane, the rights of the
beneficiary under the policy are not affected.
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Sec 12 The interest of a beneficiary in a life
insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or
accessory in willfully bringing about the death of
the insured. In such a case, the share forfeited
shall pass on to the other beneficiaries, unless
otherwise disqualified. In the absence of other
beneficiaries, the proceeds shall be paid in
accordance with the policy contract. If the policy
contract is silent, the proceeds shall be paid to
the estate of the insured.
20
Where the beneficiary, as principal,
accomplice, or accessory, intentionally
brings about the death of the insured under
such circumstances as to amount to a
felony, he cannot receive any benefit under
the contract of insurance.
Is there INSURABLE INTEREST
over the life of the INSURED?
1. CREDITOR over the life of his DEBTOR
2. SERVANT over the life of his MASTER
3. EMPLOYEE over the life of his EMPLOYER
4. EMPLOYER over the life of the EMPLOYEE
5. CORPORATION over the life of its MANAGER
6. PARTNER over the life of his CO-PARTNER
7. PARTNERSHIP over the life of each PARTNER
4

Is there INSURABLE INTEREST
over the life of the INSURED?
8. CHILD over the life of his MOTHER or
FATHER
9. GOLFER over the life of his CUDDY
10.FIANCE over the life of her BETHRONED
11.A PERSON over his own LIFE
27
that anyone has an insurable interest in
property who derives benefit from its
existence or would suffer loss from its
destruction
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Is there INSURABLE INTEREST
over the life of the INSURED?
8. CHILD over the life of his MOTHER or
FATHER
9. GOLFER over the life of his CUDDY
10.FIANCE over the life of her BETHRONED
11.A PERSON over his own LIFE
Insurable Interest In Property
(Sec. 13-18)
Sec. 13. Every interest in property, whether
real or personal, or any relation thereto, or
liability in respect thereof, of such nature that
a contemplated peril might directly damnify
the insured, is an insurable interest.
28
TEST of II in Property Insurance
WHETHER THE INSURED / ASSURED has such
a right, title or interest therein, or in relation
thereto, that he will be benefited by its
preservation and continued existence or suffer a
direct pecuniary loss from its destruction or injury
by the peril insured against.
30
5

Section 14. An insurable interest in property may
consist in:
a. An existing interest; under legal or equitable title (purchaser
of property before delivery; mortgagee, etc)
b. An inchoate interest founded on an existing interest;
interest stockholder as to the property of the corporation, partner
as to the property of the partnership or
c. An expectancy, coupled with an existing interest in
that our of which the expectancy arises farmer as to
future crops to be grown on land owned by him at the time of the
issuance of the polic y; owner of a business against a contingency
which may cause loss of profits resulting from the cessation of
business or its interruption; workman as to any building he may be
contracted to repair.
31
An existing interest
4. Lessee in the leased property and in the
improvements which he places thereon
5. Mortgagor in the property he mortgaged
6. Executor in the property devised to him
7. Assignee over property assigned; seller of an
unconveyed property
33
An Inchoate Interest
1. Purchaser of property at a judicial sale, subject to redemption
2. Owners of stocks of a corporation over the property of the
corporation (to the extent of their holdings)
3. Person holding a lien on property to secure his debt
4. Vendee a retro in the property sold under pacto de retro (right
to repurchase / conventional redemption)
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An existing interest
1-7: legal title
1. Owner of the property who has contracted to sell it but retains
the legal title, or has a lien thereon until the purchase price is
paid or the conditions of sale are performed
2. Owner of the vessel even if the vessel has been chartered by
a person who bound himself to pay her value in case she is
shipwrecked during the voyage
3. Lessor over property leased and in the improvements which
the lessee constructs and for the removal of which by the
lessee the lease does not provide, and in goods of the lessee
on which he has a lien, or which he may seize, for arrears of
rent
32
An existing interest
8-12: equitable interest
8. Vendee before the actual execution of the deed of
conveyance
9. Person in possession of property under claim of
ownership
10. Vendor of goods who holds them to secure the
payment of the purchase money
11. Beneficiary of a trust
12. Creditor under a valid deed of assignment
34
Expectancy coupled with
existing interest
1. Profits expected to be obtained by the owner of goods
consigned to an agent for the sale of the same
2. A farmer over the crops to be raised by him on the land of
another (crops to belong to him when produced)
36
6

As a general rule, however, the expectation
of benefit to be derived from the continued
existence of property must have a basis of
legal right, although the person insured has
no title, either legal or equitable to the
property insured.
37
VALID or VOID
insurance policy can be taken out over
the ring that is given to the fianc
It was held that such automatic assignment is
void for being contrary to law and public
policy, hence, the insurer cannot be
compelled to pay the proceeds of the policy to
the lessor who has no interest in the property
insured.
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VALID or VOID
insurance policy can be taken out over
the ring that is given to the fianc
An insurance taken out by a person
on property in which he has no
insurable interest is void.
In Cha v. CA, the contract of lease provides that
any fire insurance policy obtained by the lessee
over his merchandise inside the lease premises
without the consent of the lessor is deemed
assigned or transferred to the lessor.
40
An owner whose property was levied upon by a
judgment creditor and who lost the same in an
execution sale retains insurable interest thereon
during the redemption period for he is still the
owner of that property for that period.
However, the buyer during the auction sale also
has an interest over the subject property subject
to the condition that the property will not be
redeemed.
Hence, the purchaser acquires insurable interest
at the time of the purchase.
42
7

Where there is no insurable interest, the
premium is ordinarily returned to the insured
unless he is in pari delicto with the insured.
The doctrine of waiver or estoppel cannot be
invoked since the public has an interest in
the matter independent of the consent or
concurrence of the parties.
43
REASON
Loss of the thing may cause liability to the carrier or
depository to the extent of the value of the goods
Though a carrier has no pecuniary interest in the goods
in his possession, and is not liable for their loss by fire,
he may insure them as his own or held in trust by him,
and in case of loss may recover in his own name,
holding all in excess of his own claim in trust for the
shipper
45
Sec. 16. A mere contingent or expectant
interest in any thing, not founded on an actual
right to the thing, nor upon any valid contract
for it, is not insurable.
47
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Section 15. A carrier or depository of any
kind has an insurable interest in a thing
held by him as such, to the extent of his
liability but not to exceed the value
thereof.
44
Refer to Civil Liabilities of Carriers
and Depository under the Civil Code
Whether Legal, Conventional or
Necessary
46
Expectant heir cannot insure future
inheritance (while predecessor is still alive)
General creditor cannot insure the property
of his debtor (even though destruction of
such property would render worthless any
judgment in his favor)
48
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Sec. 17. The measure of an insurable
interest in property is the extent to which
the insured might be damnified by loss
or injury thereof.
Courts to carefully weigh the evidence
presented to justify recovery from the policy
Insurance adjusters valuable partners in
the determination of a just, and equitable
insurable interest measurement

49 50

ILLUSTRATION

Commission Merchant to whom goods Sec. 18. No contract or policy of insurance

are consigned on property shall be enforceable except for
Insurable Interest over the goods the benefit of some person having an
insurable interest in the property insured.
consigned to the extent of the
commissions he would receive on the
sales

51 52

Time when insurable interest

must exist
OBJECTIVE OF PROPERTY An interest in property insured must exist
when the insurance takes effect, and when
INSURANCE the loss occurs, but need not exist in the
-Indemnification of the assured meantime;
and interest in the life or health of a person
-NOT wagering contract must exist when the insurance takes effect,
but need not exist thereafter or when the
loss occurs.
53 54

9

A decree of legal separation does not
remove the insurable interest of a spouse
over the other whether or not one insures
the life of a spouse before or after legal
separation.
But if in case of annulment, the policy must
have existed before the declaration of
annulment, otherwise, there is no insurable
interest.
55
both the mortgagor and the mortgagee
have an insurable interest in the
property mortgaged and this interest is
separate and distinct from the other
They may take out separate policies at
the same time or at separate times
57
Mortgagee
has an insurable interest in the mortgaged property
to the extent of the debt secured; such interest
continues until the mortgaged debt is extinguished
although the mortgagee is himself the insured, as
where he applies for a policy, fully informs the
authorized agent of his interest, pays premiums, and
obtains the policy on the assurance that it insures
him, the policy is in fact in the form used to insure a
mortgagor with loss payable clause
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Insurable interest in case of
mortgaged property (Sec. 8-9)
Sec. 8. Unless the policy otherwise provides, where a mortgagor of
property effects insurance in his own name providing that the loss shall
be payable to the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the original contract,
and any act of his, prior to the loss, which would otherwise avoid the
insurance, will have the same effect, although the property is in the
hands of the mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be performed by
the mortgagee therein named, with the same effect as if it had been
performed by the mortgagor.
56
Mortgagor
the mortgagor of a property, as owner,
has an insurable interest to the extent of
its value, even though the mortgage
debt equals such value.
Reason: the loss or destruction of the
property insured will not extinguish his
mortgage debt
58
PROBLEM
A policy was issued to the mortgagor,
but it was taken out for the benefit of
and payable to the mortgagee. What
right of action will the mortgagor avail
of upon the happening of the insured
risk?
60
10

Property mortgaged: P1M
Debt secured by the mortgage: P400K
II of Mortgagor: ?; II of Mortgagee: ?
If policy issued to the mortgagor (taken out
for the benefit of and payable to the
mortgagee): II of Mortgagor - ?
61
Sec. 9. If an insurer assents to the transfer
of an insurance from a mortgagor to a
mortgagee, and, at the time of his assent,
imposes further obligations on the assignee,
making a new contract with him, the acts of
the mortgagor cannot affect the rights of said
assignee.
63
Standard or union mortgage clause
Open mortgage or Loss Payable clause
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Mortgagor may sue thereon in his own
name for the amount not covered by the
mortgagees interest.
62
TRANSFER = not limited to assignment
(assignor to assignee)
Why assignee not affected by
subsequent acts of mortgagor =
Novation where principal conditions or
obligations have been modified
Transfer may be consummated by Will
(Testate) or Succession (Testate and
Intestate/Legal)
64
Standard or union mortgage clause
the subsequent acts of the
mortgagor cannot affect the rights of
the mortgagee
66
11

Open mortgage or Loss Payable clause
the mortgagor does not cease to be a party to the
contract
-In the policy obtained by the mortgagor with loss
payable clause in favor of the mortgagee as his interest
may appear, the mortgagee is only a beneficiary under
the contract, and recognized as such by the insurer but
not made a party to the contract itself.
-This kind of policy covers only such interest as the
mortgagee has at the issuance of the policy.
67
Separate insurable interest of
mortgagor and mortgagee (Sec. 53
and 95)
Sec. 53. The insurance proceeds
shall be applied exclusively to the
proper interest of the person in
whose name or for whose benefit it is
made unless otherwise specified in
the policy.
69
NOT DOUBLE INSURANCE
Sec. 95. A double insurance exists
where the same person is insured by
several insurers separately in respect
to the same subject and interest.
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Hence, creditors of the mortgagor cannot
garnish or levy upon the proceeds up to the
extent of the debt to the mortgagee.
68
Where different persons (mortgagor and
mortgagee) have different interests in the
same property, the insurance taken by one
in his own right and in his own interest does
not in any way inure to the benefit of
another.
70
PROBLEM:
A, owns a house worth P1M. He insured it for the
same amount on August 1, 2017 with a domestic
insurance company, paid the corresponding premiums
and received the policy the same day.
A week later, the house was partially destroyed by an
accidental fire. The damage was appraised to be worth
P400,000.
On August 13, 2017, A sold his partially damaged
house to B, who soon after undertook the repairs of the
damage.
12

Q: Can A, who is no longer the owner of
the property on Aug. 13, 2017, validly
claim the P400,000 as insurance
proceeds?
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A: YES. A ceased to have insurable interest
on the property only after the occurrence of
the event insured against. A can still collect
from the insurer because he had insurable
interest on the house insured both at the
inception of the contract and at the time of
destruction of the house. (Sec. 21)
13