Previously we explained, what is insurance and today we are asking, who qualifies for an insurance cover? Can anybody get a cover on any property or a person? The answer is no. There is no way someone may insure his/her neighbour’s car. So, for one to qualify for an insurance cover has to have an insurable interest on the property or on the person he is looking to insure.
What is an insurable interest?
A person or an entity (it may be a company, group, organization etc.) has an insurable interest on a property, an event or a person, if in case of a loss or damage of the property or death, would incur a financial loss or other hardships.
That is, for you to take an insurance cover on any property or event or a person, you have to prove that in case of the occurrence of a peril, you will directly be affected.
John has a car. So if it is involved into a road accident and it is damaged, he will be required to repair it and that’s a loss. If it is stolen, he will be minus a car, and that’s a total loss. Again if his car hits a pedestrian (whether he dies or is injured,) John will be held responsible and he will have to pay the person. So, that is an unexpected expense- a loss. Therefore if when something happens to John’s car he is directly affected (he incurs a loss,) we say he has an insurable interest.
Also in the life insurance policies, if something happens to John, it will directly affect his wife and vice versa, each has an insurable interest on the other. That is, John’s wife has an insurable interest on him. This means that, she can take a life insurance cover for him. Still a person can get an insurance cover for in case if he/she dies, the people who depends on that person(named beneficiaries) will not be left with problems.
Simply put, you have an insurance interest if you benefit from the continued existence and well being of the property or person.
Why is an insurable interest required?
Insurance policies are meant to compensate the loss associated with the damage on the property or death of a person. Therefore, is a mandatory for a person seeking to insure a property or a person, to have an insurable interest. This is because, if you have no insurable interest, you don’t experience a loss that could be compensated.