Critics of insurance claim that one of the major flaws is that it is very similar to gambling and hence is unethical – at the end of the day we all know that in Vegas the house always wins. However, they are idiots and haven’t a clue about what insurance really is – and insurance companies DON’T always win (okay, I should not dig myself a hole here). But insurance is never a wager – far from it. I would go as far as saying that insurance is truly the backbone of a robust economy – no insurance, no economy.At the end of the day, it’s because of insurance that businesses can truly thrive in their core function and not worry about operational hazards – without insurance, we would see competent factories go bankrupt because of an unfortunate accident or fire! In addition, the insurance industry, using the significant amount of capital gained by insurance premiums (before claims are paid), generates a significant amount of investment back into the economy – contributing greatly to the national income multiplier. Let’s not forget that it was the insurance business that was at the core of Warren Buffet’s great success. Okay, so enough about how great insurance is – what is insurable interest? Well, it’s precisely because of this principle that we can explain to the critics of insurance that it is everything except a wager.
In a contract of insurance, for a claim to be payable, it is absolutely essential that the conditions brought about by the principle of insurable interest are met. Without going into the caveats to this when looking at different classes of insurance (for example in marine insurance you just need it at the time of the loss whilst in property it is required at the time of inception, loss and claim), insurable interest in simple terms is just that the person claiming should actually have incurred a loss themselves and the insurance policy therefore performs to put them in the same financial position as they were prior to the loss (this is the insurance principle of indemnification, the next article!). As a result, if there is no insurable interest, there is no insurance cover as otherwise the claimant would benefit from the claim being paid. With this simple principle, insurance suddenly becomes this great boon to mankind from just a mere gamble on whether a loss will occur or not!
So, if you own a property, you can insure it. If you rent a property, you can’t insure the property (as it doesn’t belong to you but rather to the landlord) but you can insure the contents that you own. At the same time, you may have to pay for damage to the property if you cause the damage due to your negligence – so you would purchase a liability policy to insure your duty of care towards your landlord. Here we go – insurable interest – you can only insure it if you stand lose financially! Voila!
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