Insurable interest is easy to understand on the surface level. However, in certain issues some things are not clearly defined, something that the courts are trying to establish more definitively. To answer the question “What is insurable interest?” you need to ask another questions “How will this scenario financially hurt me?” Insurable interest is the guideline used to determine such things as exactly who can take out an insurance policy on you or vice versa.
Insurable interest is a fundamental requirement for an insurance agency to issue any kind of policy. Parties not subject to suffer financial loss from an event or person do not meet the insurable interest requirement and cannot purchase an insurance policy to cover that event or person. Also, if you have insurable interest, that can change quickly, nullifying current policies. For example, if someone sells a car but hasn’t canceled their policy yet, and the car is totaled, the seller couldn’t collect on the policy because they no longer have insurable interest in the vehicle. This also applies to life insurance, insurable interest must be proved in order to purchase a policy.
Most states have ruled that a party does not have an insurable interest in a person to whom they are not related by blood or law. Friends have attempted to take out insurance policies on each other, with the longer living partner becoming the recipient of the payout. This becomes essentially a wagering contract, with the wager being made on the other’s life. There is also the unwanted possibility this could encourage homicide.
Conditions often used to define insurable interest in life insurance:
A guideline often used is that the benefactor is more attached to the insured than the policy is worth.
For instance, under MA state law, a corporation has insurable interest in any of its directors, officers, and employees. The loss of life or of physical or mental health could seriously impact the ability of that corporation to earn a profit.
Here is a list of things that you can have insurable interest in:
While some lack of clarity still remains in the court systems in abnormal instances, the basic principle of insurable interest is that the loss of an item or individual will adversely affect you.
The laws regarding insurable interest are still being developed in some states as courts encounter new situations. If you are unsure if you have insurable interest in something please feel free to contact H&K Insurance of Watertown, MA to find out. Our expert team will explain the many types of coverages available and how they can be applied to whatever you have insurable interest in.