QS Study

Essentials of Insurable Interest

Insurable Interest is an economic stake in an event for which an insurance policy is purchased to mitigate the risk of loss. An insurable interest is a basic requirement for an insurance company to issue a policy. Entities not subject to financial loss from an event do not have an insurable interest and cannot purchase an insurance policy to cover that event.

Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence of the insured object (or in the context of living persons, their continued survival). A person has an insurable interest in something when loss-of or damage to that thing would cause the person .to suffer a financial loss or other kinds of loss.

Typically, insurable interest is established by ownership, possession, or direct relationship. For example, people have- insurable interests in their own homes and vehicles, but not in their neighbors’ homes and vehicles, and certainly not those of strangers.

The essentials of insurable interest are:

(1) There must be an object (life, property, potential liability, rights or financial interest and etc.) capable of being covered;

(2) Such an object (life, property, potential liability, rights or financial interest and etc.) must be the subject – matter of the insurance;

(3) The insured must be in a legally recognized relationship with the subject matter of insurance whereby the benefits by its safety or absence of liability and is prejudiced by its damage or destruction or creation of liability.

Insurable interest must be material (possibility assess in money), subjective (related to individual person) and lawful.

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