ASIDE from the life of a person, properties may also be insured against harmful risks especially when a person can benefit significantly from these. Likewise, such properties may also be insured if the person might directly suffer any losses arising from its destruction or damage. In such a case, the person has an ‘insurable interest’ in the property, without which, any insurance policy taken on that property is considered invalid and any future claims will be denied.
Due to having a legal and existing interest, a titled owner of a certain property, say, a house and lot, may buy property insurance to protect it against any stipulated peril, such as theft, fire, or flood. It is important to note that not only the titled owner can purchase insurance for the property. If the house is being rented by another person, the other person may also insure the house because he, as a tenant of the house being insured, may also bear some losses in case the house is destroyed or ruined.
The cited situations are illustrations of ‘insurable interest’ on a property due to a legal interest (titled owner) or a possessory right (leased or rented property). Now, can a person who is neither a titled owner nor a tenant of the house insure the same property? Yes, as long as he has a direct interest in the preservation of the property. A building contractor who built the house may also insure it for his own protection against losses if the house is destroyed.
A person may also have an ‘insurable interest’ in a property he bought but is still in the process of being delivered to him (en route). For example, the buyer of a certain property, like a specialized machine only available in another country, buys insurance for its loss or damage during the voyage. That person then may validly claim from the insurance company in case the vessel sinks, resulting in the destruction or loss of the purchased machine. The buyer already has an equitable interest over the property being delivered.
Correspondingly, the carrier also has an ‘insurable interest’ in an item or a commodity being delivered because it will also cost him some amount if it is lost as he will have to pay the shipper (buyer) to compensate for the damaged or lost good.
Aside from the existing interest in the property, an inchoate interest, or a future or unripe interest in a property, may also be a basis of an ‘insurable interest.’ But it must be founded on an existing interest. A stockholder has an inchoate interest over the properties of the corporation, and this inchoate interest depends on his existing interest, being a shareholder in the corporation.
On the other hand, an interest based on mere expectancy may not be a valid ‘insurable interest’ in a property. A child whose parents own and operate a rental property may also have an interest over the property, and on the profits to be earned from the rental business, because the child will naturally inherit them upon the passing of his parents. However, his interest in the rental property is not founded on an existing interest yet.
‘Insurable interest’ in property insurance is distinct from that in life insurance in many aspects. In the former, the extent of insurance benefits is only up to the value of the property being insured, while in the latter, it is unlimited except if secured by the creditor (or lender).
A life insurance is valid if the insurable interest exists at the time the contract was finalized, but in a property insurance, the insurable interest must also exist at the time when the property is lost.
In property insurance, there must be a legal basis for the expectation of benefit derived from the property. This is not always true for a life insurance, as there is still an insurable interest over the life of a person even if the benefit is not based on a legal or enforceable obligation.
Also, the beneficiary in property insurance must have an insurable interest over the property. Whereas in life insurance, insurable interest is not necessary if the insured purchased a policy for himself and assigns another person as beneficiary, but when a person takes an insurance for the life of another, the beneficiary in this case should have an insurable interest.