Insurable interest

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 cost would 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 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 cash, it would generally be safer to insure it before driving her 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.