insurable interest

  

Definition

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 another's 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.

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