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Insurable interest

To have an insurable interest in something means you either own it or would suffer financially if it were damaged, destroyed or stolen. Insurable interest is needed before you can insure an item.

Why is insurable interest needed to insure an item?

Insurable interest is one of the main principles on which insurance is built. Insurable interest requires that you, the policyholder, must value and/or care about the thing that you are insuring and should try to prevent bad things from happening to it (be it damage, loss, or theft). If people don't have an insurable interest in the things they insure, insurance will likely become unaffordable as claims costs spiral out of control.

Can I insure something I don’t own?

You can insure something you do not own as long as you have an insurable interest in it. For example, if you are getting married in a year and you give your fiancée an engagement ring, you essentially don’t own the ring, but you do have an insurable interest in the ring as you would most likely need to replace it if it is lost. Or if your child’s car gets stolen, it will materially affect your finances, even though it isn’t your car. So you have an insurable interest, and therefore you can insure your child’s car.

Can I insure a car before I buy it?

Yes, you can! If you are buying a car through a loan, the dealership will require you to show proof of insurance before you can take your new car home. However, even if you bought your car in cash, it would generally be safer to insure it before driving it off the dealership floor. Just make sure you have the exact details, like the make, model, year of manufacture, and VIN before getting some quotes and buying your insurance.

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