What does it mean to have an insurable interest in something?

A person has an insurable interest in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses.  In order to exercise an insurable interest, you must take out an insurance policy protecting the item.

Examples of Insurable Interest

If the house you own is damaged by fire, the value of your house has been reduced by the damages sustained in the fire. Whether you pay to have the house rebuilt or you end up selling it at a reduced price, you have suffered a financial loss resulting from the fire. By contrast, if your neighbor’s house, which you do not own, is damaged by fire, you may feel sympathy for your neighbor and you may even be emotionally upset, but you have not suffered a financial loss from the fire. You have an insurable interest in your own house, but in this example you do not have an insurable interest in your neighbor’s house.

Requirements for Protecting an Insurable Interest

A basic requirement for all types of insurance is the person who buys an insurance policy must have an insurable interest in the subject of the insurance. You have an insurable interest in any property you own or any property that is in your possession. For purposes of life insurance, everyone is considered to have an insurable interest in their own lives as well as the lives of their spouses and dependents. For property and casualty insurance, the insurable interest must exist both at the time the insurance policy is purchased and at the time a loss occurs. For life insurance, the insurable interest only needs to exist at the time the policy is purchased.

Getting Help

If you need help with an insurance claim or understanding insurable interest, whether it’s with home, life, or other insurance policy, it’s best to consult with an attorney who specializes in insurance issues.