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What is Insurable Interest?

 

We insure because we want to the be secure from the vicissitudes of life. An unexpected event can disturb the normal pace of life especially when one is unprepared for such a situation.

Insurance is the best method of securing the risk of loss. An insurable interest must exist in order to buy an insurance policy. This is one of the foremost principles in an insurance contract. One cannot purchase an insurance policy without having insurable interest.

Definition of insurable interest

Any item, property, life, where we have an interest and whose loss can cause a setback financially. Insurable interest means the loss of which causes a financial loss whether it is life or property.

Having insurable interest means that the person would suffer a loss should that property or individual be lost, damaged etc. One can buy insurance for something or someone in which one’s insurable interest exists.

Financial loss need not mean only monetary loss, the loss is measured in monetary terms for the purpose of assessment. For example, a husband has an insurable interest in the life of his spouse and vice versa; because the death, injury to the person affects one and is called a loss.

Similarly, property can be damaged or lost due unexpected, unforeseen events which can cause severe financial loss.

One cannot purchase an insurance policy without having insurable interest in the subject matter insured.

Policy holder can have insurable interest in:

·       Self

·       Spouse

·       Children

·       Parents

·       Property

·       Assets

·       Business process

·       Employer

 

Insurable interest for employers

The employer has an insurable interest in the life of his employee. In the event of death or injury of the employee it is mandatory for the employer to adequately compensate the employee’s dependents for the sudden loss of earnings to the dependents.

Insurance policies are purchased by employers as a welfare measure:

·       To comply with regulatory standards and to cover their liability risk, towards employees

·       To minimize the financial loss which the employer is likely to face in the form of payments

 

Three types of risks are insurable:

 

1.     Personal risk

2.     Property risk

3.     Liability risk

 

Insurable interest is with respect to people, property, business, liability etc. A business owner has an insurable interest in a property he owns, like office building, raw material, stocks, finished goods etc. Employers insurable interest is an example of liability risk.

Any unforeseen event can destroy the property resulting in a huge loss to the business. Insurance will salvage the loss and restore the previous stage of a business. Hence insurable interest is significant in an insurance policy.

If there is no insurable interest in the subject matter proposed for insurance, proposal will not be accepted even during the initial stage. Lack of insurable interest in the subject matter insured makes the contract void. For example, one cannot take an insurance policy on the neighbour’s life as insurance will not be offered.

Various areas where insurance and insurable interest is required

  • Property insurance: Building, plant & machinery, equipment, furniture etc.  from unforeseen risks.
  • Motor insurance:  liability risk if an accident occurs.
  • Employees compensation: medical costs, disability and death benefits if an employee is hurt or dies while on duty.
  • Product liability: damages caused by policyholder’s products.

 

An insurable interest in the subject proposed for insurance is the fundamental requirement for purchasing any kind of insurance policy as it underlines the financial impact on the policyholder in the face of a loss. Understanding the concept of insurable interest enables one to make informed decisions.

 

We at Zen insurance assist in a complete understanding of the various insurance terms and conditions. Please contact us for assistance.

 

 

 

Disclaimer:   

Zen Insurance Brokers is an IRDAI registered broker which facilitates quick & accurate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products

 

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