What does Insurable Interest mean?
Adam Weaver firstname.lastname@example.org
What is an insurable interest?
A key term in insurance is "insurable interest" - it's a key requirement for you to be able to insure something.Yet this is one of the most misunderstood concepts, so let's look at what it means.
"Interest" means an asset or responsibility belonging to you (the policy holder). Something that affects you personally, and for which you're responsible. So your car, for example, or your home under construction. Or the building materials you've purchased and sitting on site.
Think of these financially - if they were damaged, lost, or stolen, you would suffer a financial loss. You would have to pay to repair or replace the items.
Intangibles can be interests too
Another type of "interest" is more intangible - like legal liabilities or responsibilities. Like being sued for personal injury to a person or a worker in your care, or someone's property being damaged through your negligence.
These are financial interests too - if something happened to those, you would suffer a financial loss - because you'd have to pay to compensate the owner of the property or the person being injured.
So that's the key here - if you have a financial interest in something, you may be able to insure it.
- If your construction project is damaged, you would suffer a financial loss - you can therefore buy insurance.
- If you negligently injure someone or damage property, you would suffer a financial loss - you can therefore buy insurance.
Common sense, isn't it?
What IS NOT insurable
But if you wouldn't suffer a financial loss, then you can't buy insurance. Since you don't have an insurable interest in the property, you can't buy insurance on it.
Most people seem to implicitly understand this in relation to cars. For example, you can insure your own vehicle against damage - because if it is in an accident, you would suffer a financial loss in getting the car fixed.
But if your neighbour damages his car, you would not suffer a financial loss. Hence you can't buy insurance over your neighbour's car so you get a payout if he has an accident.
Same with liability
It's the same concept with legal liability. If you're not actually responsible for the damage or injury, you can't buy insurance against the peril. A good (real) example would be a delivery driver running his truck into your neighbour's house while delivering bricks to your project.
Yes, the driver was delivering bricks to your project, but he wasn't acting under your supervision, and you certainly didn't tell him to drive his vehicle through the neighbour's fence.
You wouldn't expect to be held responsible for his negligence, so you can't buy insurance to pay out your neighbour for his own damage. If however you are blamed, we'd expect the insurer to step in to defend you.
Again, it's supposed to be common sense.
Consequences for owner builders
- Make sure you have your own public liability insurance
- Make sure you insure all of your own property and the property for which you're responsible
- You can't insure the belongings of others (e.g. your tradesmen's own tools) because they're not your responsibility
- You can't insure the legal liability of others (e.g. your tradesmen) because their actions aren't your responsibility
- You can however insure your own legal liability (so if you do get held vicariously liable for your tradesmen, you would be protected).
- Allrisk specialise in this type of insurance