Personal Finance

Insurable interest

Bavadharini KS | Updated on December 16, 2018 Published on December 16, 2018


Policyholders wanting to avail themselves of insurance must have an interest in the object/life that is covered under the policy.

To better understand the concept, consider this example. If the taxi you own is damaged or destroyed, you will face financial loss, because the taxi no more runs and earns income for you, and you also lost the money you invested to buy it.

So, you have an insurable interest in the taxi and can buy insurance cover for it. But note, you cannot buy insurance for your neighbour’s car as you do not have an insurable interest in it.

An insurance contract is legally binding only when there is an insurable interest. And as an insured, you have taken every step to prevent or reduce the risk.

In the case of life insurance, insurable interest is based on a relationship, whereby there is genuine interest in the health and well-being of the insured in continuing to live.

Relationship will include only spouse, children, immediate family members and dependants.

The principle of insurable interest states that the policyholders should be compensated for a covered loss, but the claim should not result in any personal gain for the policyholder.

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