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Insurable Interest

What is insurable interest?

Insurable interest safeguards anything that can bear a financial loss. An individual or entity may have an insurable interest in an item, event, or action when the object's harm or loss would result in a financial loss or other hardships.

An individual or entity would buy an insurance policy covering the person, item, or event to have an insurable interest. The insurance policy will reduce the risk of loss if any harm or damage causes to the asset.

Insurable interest is a vital requirement for issuing an insurance policy that makes the entity or event lawful, valid, and protected against deliberately harmful acts. People not exposed to financial loss do not have an insurable interest. I.e., a person or entity cannot buy an insurance policy to protect themselves if they are not actually exposed to the risk of financial loss.

Insurable Interest Explained

Insurable interest means the right or benefit of a person or entity to insure something or someone that could cause them financial loss or hardship if damaged, lost, or deceased. It is a requirement for all insurance policies to be legal and valid. The person or entity buying the insurance policy must have an insurable interest in the thing or person being insured at the time of purchasing the policy. The insurable interest can be based on ownership, possession, relationship, or dependency. For instance, a person can insure their own house, car, spouse, or job, but not their neighbor's house, car, spouse, or job. The insurable interest is limited by the amount of financial loss or hardship that the person or entity would suffer if the thing or person insured is harmed. Some examples of insurable interest are:

  • A bank has an insurable interest in a property that it has given a mortgage loan.

  • A parent has an insurable interest in a child's life and depends on them for support and care.

  • A landlord has an insurable interest in the property they rent out to tenants.