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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