“Insurable Interest” is a legally recognised relationship between the policyholder and the insured person or insured property (the subject matter of insurance). It grants the policyholder the right to purchase insurance for the subject matter. An insurance policy is legally valid only if insurable interest exists.
In other words, there must be an insurable interest between the policyholder and the insured person or property for the former to purchase insurance for the latter. The insurable interest is based on the fact that if the insured person or property suffers a loss or damage (e.g., the insured person is injured or dies, or the insured property is damaged or stolen), the policyholder would incur a loss. Insurable interest typically exists only between direct relatives, spouses, or estate administrators to prevent moral hazards.
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To establish “Insurable Interest,” the following prerequisites must be met:
- Presence of Insurable Subject Matter: There must be an insurable subject matter, such as a person’s body (including life and limbs), property, liability, or legal rights (e.g., a creditor’s right to demand repayment of a loan from a debtor).
- The Subject Matter Must Be the Insured Entity: The person or property in question must be the insured subject matter (i.e., the insurance coverage is determined based on incidents involving these individuals or property).
- Legally Recognised Relationship Between the Policyholder and the Insured Subject Matter: There must be a legally recognised relationship between the policyholder and the insured subject matter that meets the definition of “Insurable Interest.” When an insured unfortunate event occurs, the policyholder would suffer financial loss (sometimes, “Insurable Interest” can be legally presumed without proving a financial relationship, such as a person having insurable interest in the life of their spouse).
- Legality: The premise of “Insurable Interest” is legality. For example, if a policyholder insures property they have stolen, this cannot establish “Insurable Interest.”
Personal Insurance (Including Life Insurance, Health Insurance, and Accident Insurance)
We have “Insurable Interest” in our own lives and bodies, as well as in the lives of our spouses and children under the age of 18 (or those we legally guardianship who are under 18). When insuring a child or a ward, the purchased insurance will not become invalid when the insured turns 18.
Property Insurance (For Tangible Items)
We can insure properties for which we have absolute ownership. Common examples include comprehensive vehicle insurance and home insurance. Additionally, executors of wills, estate administrators, trustees, mortgage holders, and custodians can also purchase insurance for estates, trust properties, mortgaged properties, and properties under their care, respectively.
Liability Insurance
We have potential legal liability for our actions or negligence, and thus we can purchase insurance for this (sometimes such insurance is mandatory). Common examples include third-party vehicle insurance and home insurance. This type of liability is known as “direct liability” or “primary liability.” Sometimes, we may also need to insure against vicarious liability, such as when an employer purchases insurance to cover their liability for acts of negligence committed by their employees toward the public.
Insurance of Legal Rights
If our legal rights are potentially at risk of being infringed upon, or if there is a potential loss of future legal income, we can insure against these risks. For example, a landlord has the right to purchase insurance to cover the risk of rental income loss due to fire.
- Parents Purchasing Insurance for Their Children or Vice Versa: It is common for parents to buy insurance for their children, or for children to purchase insurance for their parents.
- VHIS for Siblings or Grandparents: Voluntary Health Insurance Scheme (VHIS) allows policyholders to purchase insurance for their siblings or grandparents.
- Companies Purchasing Life Insurance for Partners or Key Personnel: A company may purchase life insurance policies for business partners or key employees to protect against potential losses.
- Creditors Purchasing Life Insurance for Debtors: Creditors can purchase life insurance for their debtors, with the coverage amount equal to the loan amount plus any unpaid interest.
- Event Organizers or Sports Organizations Insuring Performers or Athletes: Event organizers or sports teams may insure performers (such as musicians or singers) and professional athletes against risks associated with their performance or participation.
- Expanded Beneficiary Eligibility for Bowtie: Bowtie has expanded its eligibility criteria for life insurance beneficiaries, allowing same-sex partners and non-blood-related stepchildren or stepparents to become life insurance beneficiaries.
Author
The Bowtie Life Insurance Company Limited is an authorized life insurance company and Hong Kong’s very first virtual insurer approved. Through the use of modern technology and medical expertise, Bowtie offers an agent-free, commission-free and more convenient online platform for customers to quote, apply and claim for Voluntary Health Insurance Scheme (VHIS) anytime anywhere. Bowtie is ranked first in the direct channel sales throughout 2021.
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www.bowtie.com.hk The content of this article is provided by Bowtie Team and serves for reference only. It does not represent Bowtie's position. Bowtie assumes no responsibility for any loss or damage incurred by any person as a result of using, misusing, or relying on any information or content herein. Any content related to Bowtie products in this article is for reference and educational purposes only. Customers should refer to the detailed terms and conditions on the relevant product web pages.
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