The particulars of the insurable interest in a contract of insurance are very important to the insurer in determining how to evaluate the risk of an application. How does an insurer assess the risk it is undertaking and what are the consequences of an incorrect assessment however caused?

Insurer's Assessment of Risk:
- contract is one of utmost good faith
- requires full disclosure by the applicant of all material facts which might affect the assessment of the risk by the insurer
- since the applicant is in possession of all the facts and information relevant to the risk there is a strong onus on him or her to disclose all such material information
- the receipt of such information is crucial to the insurer's decision whether to accept the risk and, if so, how much to charge for accepting it
- at common law, non-disclosure or misrepresentation would entitle the insurer to avoid liability under the claim
- some provinces have modified the common law by statute such that non-disclosure or misrepresentation which is innocent may not relieve the insurer of liability if the policy has been in effect for a specified period of time before the loss occurs
- rationale is that it is unfair for the insurer to refuse payment on the basis of information which the insured honestly believed to be True after receiving premiums for a period of time