An insurance policy without insurable interest is classified as what?

An insurance policy that lacks insurable interest is classified as void and illegal because insurable interest is a fundamental principle in insurance contracts. Insurable interest requires that the policyholder has a legitimate interest in the preservation of the insured item or person; this ensures that the policyholder will suffer a loss if the event covered by the insurance occurs. Without this interest, the contract is no longer considered a valid insurance agreement.

The concept of insurable interest is intended to prevent moral hazard—where someone might be incentivized to create a loss or risk to gain from an insurance payout. Therefore, if there is no insurable interest, the policy does not meet the legal requirements of an enforceable insurance contract, rendering it void and illegal. This safeguards the integrity of the insurance industry by ensuring that policies are only issued when the policyholder is genuinely at risk of loss.