Do I Have an Insurable Interest?
Created by FindLaw's team of legal writers and editors | Last reviewed June 02, 2017
With so many types of insurance out there, you might wonder if there’s anything you can’t insure. For example, you can insure your pet, boat, crops, and life, so could you also take out an insurance policy on your best friend’s car? As it turns out, you can only insure those items for which you have an insurable interest. Read on to learn more about insurable interests and how they affect the types of insurance policies you can buy and enforce.
What Is an Insurable Interest?
So, you have to have an insurable interest in something in order to buy insurance for it. But what does that mean? You have an insurable interest in a person or thing if you would suffer a direct financial loss upon the destruction of the property or the death of the person. Put another way, you have an insurable interest if you benefit from the continued well-being and existence of the property or person.
Under this rule, you can’t take out an insurance policy on your neighbor’s car because you don’t stand to lose anything if the car is damaged or totaled. Similarly, you can’t buy a life insurance policy on your distant third cousin because his death wouldn’t directly affect your finances. On the other hand, you have an insurable interest in your spouse because their death would cause severe hardship on your family. Similarly, you have an insurable interest in your home because the destruction from something like a fire or earthquake would significantly decrease your home’s value.
Why Is an Insurable Interest Required?
Having an insurable interest in the person or thing you want to insure is a requirement because insurance policies are meant to compensate you for the losses associated with the damage to the property or the death of the person. If you have no insurable interest, you don’t experience a loss that could be compensated. Consequently, you have no incentive to prevent harm to the person or thing – rather, you may actually be incentivized to cause such harm in order to collect the applicable insurance benefits. Therefore, requiring an insurable interest helps to avoid insurance fraud as well as intentional acts of misconduct.
This requirement is also important, because it must be present in order to enforce or collect on an insurance policy. Different kinds of insurance require the insurable interest to exist when the policy is first taken out, when the loss occurs, or both. If it’s not present at the requisite time, you can’t force the insurance company to hold up its end of the bargain and pay you the proceeds from the policy you’ve been paying for.
An Insurance Company’s Legal Obligations
As noted above, your insurance company is not obligated to sell you an insurance policy or pay your insurance proceeds on an existing policy if you don’t have an insurable interest at the requisite time. However, some insurance companies may claim you lack an insurable interest simply to avoid paying a legitimate claim. If you believe your insurance company has denied your valid insurance claim or is otherwise acting in bad faith, you may be able to file a breach of contract lawsuit or a bad faith lawsuit. You can also file a complaint with the state’s insurance commissioner who regulates the insurance industry within your state.
Get Help Defending Your Insurable Interest
Each state has its own insurance laws, and they can be complicated and confusing. Whether you’re trying to prove that you have an insurable interest and should be compensated under an insurance policy, or you’re dealing with an insurance company who’s denied your claim for other reasons, the other side of your dispute is likely to be well represented by seasoned lawyers. Contact an experienced, local insurance attorney who can fight for your rights and help protect your interests.
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