Insanity is defined as some altered mental state qualifying as at least one of the following: unable to comprehend one's own actions or their consequences, unable to tell what is real or not, unable to think clearly, unable to control one's own impulses, or otherwise suffering from some mental disorder that severely inhibits logical cognition or behavioral control.
Note that simply being extremely unreasonable is not enough to qualify as insane. For example, many villains may have plans to destroy the world, and though this may stem from an immense ego and recklessness, it does not necessarily stem from insanity as we define it. Likewise, a statement that someone is insane on its own is insufficient, and the actual context must be considered.