Insurable Interest can be defined as benefit in cash or kind benefited from by an insured individual through the continuous existence (no damage or impairment) of the object insured. It can be said that an individual has an insurable interest in something if damage or loss where to happen to that thing and result in the insured dealing with a certain type of loss.
Things to Note about Insurable Interest
In a typical situation, insurable interest can be established by:
- Direct Relationship
For an individual to exercise insurable interest, they must have an insurance policy protecting against loss or damage to the item. According to the laws guiding insurance, the insured must have a stake in the object of his or her policy. So, to the individual seeking protection of their home or business property, there is an insurable interest when there is a financial benefit to be gained from the protection of the property or they incur certain loss as a result of damage to the property.
Another thing to note about insurable interest is that it is not reliant on the person who pays the policy’s premium. As a matter of fact, several individuals can have separate insurable interests in the same property. However, the interest in question is only up to the value of the property and not more. This is in line with the principle of indemnity which states that the insured can only get compensation for a property’s loss and not more than what it is worth. So, in the case of a financing institution that grants a mortgage, they only have insurable interest up to the amount outstanding on the loan.
How to Identify Insurable Interest
You are only guaranteed insurable interest for property that is yours as the homeowners insurance policy only compensates a holder who suffers a loss from a peril that is covered. Therefore, even if you have a family member or a close friend, you cannot purchase homeowners insurance for them this is because it is owned by another entity
Examples of Insurable Interest
For example, you own a home and a fire occurs and causes damage, this means that the value of your home has been reduced by the damages caused by the fire. Whether you choose to salvage the property, rebuild or sell it at a reduced value, the point is you suffered a financial loss as a result of the peril and therefore if you have homeowners insurance you have insurable interest.