Insurable Interest

When insuring your property, it is vital for the insurance company to establish that you actually have an insurable interest in the property.

You must stand to suffer a direct financial loss if there is a claim, so you need to be the owner of the property.  An insurance company might not wish to cover your property if you are not directly responsible for it.

A person has an insurable interest in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. For example, if the house you own is damaged by fire, the value of your house has been reduced, and whether you pay to have the house rebuilt or sell it at a reduced price, you have suffered a financial loss resulting from the fire.

By contrast, if your neighbour's house, which you do not own, is damaged by fire, you may feel sympathy for your neighbour, but you have not suffered a financial loss from the fire. You have an insurable interest in your own home, but in this example, you do not have an insurable interest in your neighbour's property.

A basic requirement for all types of insurance is the person who buys a policy must have an insurable interest in the subject of the insurance. You have an insurable interest in any property you own or which is in your possession.

For purposes of life assurance, everyone is considered to have an insurable interest in their own lives as well as the lives of their spouse and dependents. For property insurance, the insurable interest must exist both at the time the insurance is purchased and at the time a loss occurs. For life assurance, the insurable interest only needs to exist at the time the policy is purchased.