03.01. Insurable Interest

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03.01. Insurable Interest
2013-03-18 19:49:05
Insurable Interest

Insurable Interest
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  1. Insurable interest
    • an interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred
    • is a matter of law and exists even in the absence of such a policy provision
    • life: beneficiary must have ii when policy is purchased, but not necessarily at time of death
    • P&C: ii must be present at time of loss
  2. Why is insurable interest required
    • it supports the principle of indemnity
    • it prevents the use of insurance as a wagering mechanism
    • it reduces the moral hazard incentive that insurance may create for the insured
  3. Legal bases for insurable interest
    • ownership interest of property
    • contractual obligation (regarding people / property)
    • exposure to legal liability
    • factual expectancy: a situation in which a party experiences an economic advantage if an insured event does not occur or, conversely, economic harm if the event does occur
    • representation of another party
  4. Multiple parties with insurable interests
    • combining all insurable interests, it could amount well above property value
    • the insurer will pay no more than the full value
  5. Tenancy with more than one party
    • joint tenancy: each owner owns the entire property and has automatic right of survivorship
    • tenancy by the entirety: joint tenancy between husband and wife
    • tenancy in common: concurrent ownership by share, with no survivorship rights
    • tenancy in partnership: concurrent ownership, all partners have right of survivorship