As an insurance agent, quoting auto insurance is a big part of what I do. I go through the same questions with each customer, trying to figure out which company is the best fit for their needs, best coverage and discounts.
Recently, I had a quote that shocked me, even though it sounded like any other story at first – no previous car insurance. This is common, but the reason why he didn’t have insurance surprised me.
He previously was insured on his dad’s policy, listed as a driver and his car was listed on the policy. One day when he was driving, he was the victim of a hit and run. Because he couldn’t find the other party, the claim was turned into his dad’s insurance.
The insurance company denied his claim on the grounds that there was no insurable interest.
The vehicle was titled only to the son, and the son was only listed as a driver. That means the policy and coverage on it belonged to his dad. His dad’s name was not on the title and he had no financial connection to the vehicle. It made no difference financially to the father that the car was not out of commission, because it wasn’t his car. Because the father lacked a financial connection to the vehicle, he had no insurable interest in his son’s car.
An insurance policy can only cover your insurable interests, and this is a perfect example of how a claim is denied when you don’t have insurable interest.
What does insurable interest even mean?
To put it a bit more plainly, you have an insurable interest in something that you will benefit, usually financially, from its continued existence, or would sustain loss from losing. In other words, you can only insure something that you have a financial investment in or you own.
When it comes to car insurance, this means your name should be on the title when you insure the vehicle.
To better understand, you can insure an auto or a home you have titled in your name, are currently paying a loan on, or a car you are leasing. The loss of either the vehicle or home would affect you financially.
This is a common problem for children in a household, even ones who are still students or minors. Regardless of the child’s age or relationship, it does not guarantee that their vehicle will be covered on your auto policy.
In this circumstance, the best way to cover the vehicle is to jointly title it in the names of both a named insured (presumably the parent) and child. In that circumstance, you would still want to list the child as an additional interest on the vehicle.
If the car is titled only to the child, you have to check with your agent and verify the rules for your insurance company to properly insure the vehicle. The child may have to get their own policy.
This idea also applies when you rent a property, instead of owning a home. As a renter, you can insure your belongings (because you own them and would suffer if you lost them), but not the building you are living in. The owner of the building would need to insure the building.
While I’ve tried to simply insurable interest, it can still get complicated.
One example of a tricky area is computers or iPads provided by schools. This is becoming a popular trend amount K-12. They provide the computers or other technology much like they provide textbooks, and still consider it school property. However, you may suffer a financial loss if the computer were to be stolen. This situation can mean you don’t have an insurable interest, but it walks a fine line and is a bit more complicated. For something this complicated it’s best to talk to your agent or read your policy to make sure you are covered.
If you are uncertain if you have insurable interest in something listed on your policy or want to make sure is covered in case of a loss, talk with your agent. We’re more than happy to help.
Please don't wait until a denied claim to find out you didn’t have insurable interest.
Photo Credit: “Insurance” by Got Credit. Flikr. CC BY 2.0.