Do I Have an Insurable Interest?

With so many types of insurance, you might wonder if there are limits. You can insure your pet, boat, crops, and life. You can seek insurance coverage as long as you have an insurable interest.

Read on to learn more about insurable interests and how they affect the types of insurance policies you can purchase.

What Is an Insurable Interest?

You must have an insurable interest to buy insurance. An insurable interest can take many forms. You have an insurable interest in a person or thing if you would suffer a direct financial loss upon the destruction of the person or property insured. A person, event, action, or item can have an insurable interest if its loss or damage results in a financial burden. There are many examples of insurable interests.

Insurable Interest in Life Insurance

A typical example of insurable interest involves life insurance. Life insurance requires an insurable interest in another person's life. That person's death must cause you financial hardship. Or, you could have an insurable interest if you have a financial stake in another's life. If you have a financial interest in a person or property, you could have an insurable interest.

In other words, you have an insurable interest if you benefit from the continued well-being and existence of the property or person. Similarly, you can't buy a life insurance policy on your distant third cousin if their death wouldn't directly affect your finances. A life insurance contract with your cousin as the person insured does not likely represent an insurable interest.

On the other hand, you have an insurable interest in your spouse as the insured person if you rely on your partner for finances. A life insurance company could issue a life insurance policy following underwriting. In this case, a death benefit death would help with financial security for surviving family members.

Likewise, you have an insurable interest in your own life. You can buy life insurance on your own life. Anyone who will suffer a financial loss when a person dies would have an insurable interest. They may be the following:

• Immediate family members
• Business partners
• Distant relatives
• Creditors

The owner of the policy can name a beneficiary to receive the payout for a life insurance policy.

Insurable Interest in Your Home

You have an insurable interest in your property. You can purchase homeowners insurance to protect your insurable interest. Home insurance can help your financial situation if your home is damaged or destroyed by:

• Fire
• Earthquake
• Other natural disaster

Such events would significantly decrease your home's value. If insured, you'd receive financial compensation to cover the damage.

Why Is an Insurable Interest Required?

An insurable interest in the person or thing you want to insure is required. Insurance policies compensate for losses associated with the damage to the property or a person's death.

You don't experience a financial loss if you have no insurable interest. For example, you can't take out an insurance policy on your neighbor's car. Your financial position is unchanged if your neighbor's car is damaged or totaled. No insurance agent would write such a policy.

There would be no incentive to prevent harm to the person or thing. The contrary is true. Having the ability to collect the applicable insurance benefits may incentivize you to cause harm. Requiring an insurable interest helps prevent insurance fraud and intentional acts of misconduct.

Different kinds of insurance require the insurable interest to exist when either:

• The policy is first taken out
• The loss occurs
• The policy is first taken out, and the loss occurs

If the insurable interest isn't present at the requisite time, you can't force the insurance company to pay you the proceeds of the policy. Paying your premiums alone does not entitle you to a payout.

An Insurance Company's Legal Obligations

An insurance company is not obligated to sell you an insurance policy. An insurer is not required to pay insurance proceeds to a policyholder if you don't have an insurable interest. Some insurance companies may claim you lack an insurable interest to avoid paying a legitimate claim.

Do you believe your insurance company denied your valid claim or is otherwise acting in bad faith? If so, 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. State insurance regulators regulate the insurance industry within your state.

Get Help Defending Your Insurable Interest

Each state has its own insurance laws, which can be complicated and confusing. The defendant insurance companies will be well-represented by experienced lawyers. It would help if you were, too. Contact an experienced local insurance attorney who can fight for your rights and help protect your interests.