For centuries, the law has prevented people from purchasing insurance onthe life or property of strangers because such insurance contracts would givepolicyholders incentives to end the life or destroy the property in order tocollect the insurance payout. The law thus requires that policyholders have an“insurable interest” in the person or property they insure, and contracts lackingsuch an “insurable interest” are invalidated by courts as against public policy.This Note presents an economic analysis of the insurable interest requirement,and argues that the doctrine creates perverse incentives that encourage the verypractices the doctrine seeks to deter. In addition to failing on its own terms, thedoctrine also invites unfairness and inefficiency in the insurance market. ThisNote concludes that the best way for courts to prevent insurance contracts onthe life or property of strangers may be to refrain from invalidating suchcontracts in the first place. |