Definition of Insurable interest:
Insurable interest is a type of investment that protects anything subject to a financial loss. A person or entity has an insurable interest in an item, event or action when the damage or loss of the object would cause a financial loss or other hardships. To have an insurable interest a person or entity would take out an insurance policy protecting the person, item, or event in question. The insurance policy would mitigate the risk of loss if something happens to the asset—like becoming damaged or lost.
True, valid, determinable, and direct economic stake of an insurance policy holder (or of the beneficiary of the policy) in the continued existence or safety of the insured property or person. Often stated as an interest in the outcome of a contingency other than that arising under the contract of insurance, an insurable interest means that the policy holder (or the beneficiary) must stand to suffer a direct financial loss if the event (against which the insurance cover was bought) does occur. A tenant may not necessarily have a direct insurable interest in the rented property but the landlord may. An employer may not necessarily have such claim in the life of an employee, but a married couple may in one anothers life. To an insurance company, an insurable interest is the basic reason for issuing a legal insurance cover, to an insured (or beneficiary) it gives the legal right to enforce an insurance claim. According to legal precedents: (1) in life insurance, an insurable-interest must be present when the insurance policy is taken, but not necessarily when a claim occurs; for example, anyone who takes a life insurance policy on his or her spouse, and continues to pay premium even if the marriage breaks up, is entitled to collect death benefits under the policy, (2) in marine insurance, an insurable-interest must be present when a claim occurs, but not necessarily when the policy is taken; for example, a supplier may obtain a blanket policy for the goods to be shipped in an year but must show that the goods were actually shipped when making a claim for loss or damage, and (3) in most other types of insurance (such as fire or auto insurance), an insurance interest must be present, both at the time the policy is taken and when a claim occurs; for example, a homeowner who sells the house on which fire insurance was taken, cannot collect on it in case of a fire. Insurable interest is one of the foundations of insurance because, in its absence, insurance would be no different from gambling and (even if legal) would not constitute a binding agreement.
Insurable interest is an essential requirement for issuing an insurance policy that makes the entity or event legal, valid and protected against intentionally harmful acts. People not subject to financial loss do not have an insurable interest. Therefore a person or entity cannot purchase an insurance policy to cover themselves in the event of a loss.
How to use Insurable interest in a sentence?
- Insurable interest is the basis of all insurance policies.
- The insurable interest was relevant in that the monetary amount was not negligible and was relevant to ensure a successful project.
- Although Tom lived in a spare room in his brothers house, he was unable to take out an insurance policy on the house because, as a non-owner, he did not have an insurable interest .
- To exercise insurable interest, the policyholder would buy insurance on the item or entity in question.
- If you know that you have some insurable interest that will allow you to breathe a little easier knowing you have something coming.
- The policy must not create a moral hazard, in which a policyholder would have a financial incentive to allow or even cause a loss.
- Insurable interest can be an object which, if damaged or destroyed, would result in financial hardship for the policyholder.
Meaning of Insurable interest & Insurable interest Definition