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What is Insurable Interest for Cars?

Written by W. Lane Startin. Posted in Definitions, Research Last Updated: 08/19/2011

The definition of insurable interest, examples of insurable interest in auto insurance, and how it’s applied by different insurance companies.

Nope. No insurable interest here.

Without something to insure, insurance is pointless. That should be a no-brainer. So what exactly does one insure? It’s not as dense a question as it seems.

You can’t insure just anything and expect to recover a claim from it. This is why no auto insurance company will cover the junker rusting away in your front yard which doesn’t even run.

The insured must also have a tangible interest in the entity insured. This is why you can insure your own car and place your spouse and children on the policy as drivers, but not the guy across the street just because you want to.

In order to properly indemnify the insured in a claim situation, an insurance company must make sure it is insuring something of value such as a car, a house or a life, the loss of which would cause financial hardship. This is the concept of insurable interest.

You must also own the item in question to have insurable interest. For example. If a storm knocks over a tree which damages both your car and your neighbor’s, you would have insurable interest in your vehicle but not your neighbor’s.

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Examples of Insurable Interest

In auto insurance, the most obvious example of insurable interest is the auto itself on a full coverage policy. As your auto has intrinsic value, it can be insured for up to that value as determined by the insurance company. This is usually determined by its “blue book” value at the time of loss. Ask your insurance agent to see if specific losses are covered by “replacement cost” or “actual cash value” criteria.

Insurable interest can also be represented by liability. Say you’re in an automobile accident and found at fault. The insurable interest in this case is the damage to the other vehicle up to its value and the liability costs incurred for any bodily injury up to the pre-determined limit in your policy. Bodily injury coverages incurred in your vehicle such as medical payments and PIP work in a similar manner.

Insurable interest also applies to aftermarket auto accessories on inland marine policies. If your car stereo is stolen, the stereo has insurable interest and you can be indemnified for it per the terms of your policy.

Insurable Interest by Company

Unlike many other concepts in insurance, insurable interest is pretty much universal across companies. Differences in underwriting requirements, however, may make it look different as one company may take one vehicle while another won’t. Even so, the concept remains the same. Remember, insurable interest is a key concept in auto insurance. No claim can go forward without it.

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W. Lane Startin

Lane is a former insurance agent with two well-known and highly rated companies. He left the world of insurance sales to return to his first love, writing. He enjoys helping people unravel the intricacies of insurance without the bias created by working for commission. He's a graduate of Idaho State University and by extension a long-suffering Bengals fan. Lane blogs at Car Insurance Guidebook.

Reviews (2)

  • Michele Wilmonen

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    That is a really tough question. Because technically you own the vehicle, it is your responsibility for any damage it does, and insurance always follows the vehicle. Even with your brother having the insurance policy in his name for your vehicle, I am not sure if you are covered in the event there is a lawsuit.

    This is really a question that needs to be address by an insurance agent. That way they can correctly counsel you in the coverages afforded to both of you according to state law.

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  • Barry S.

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    A question on “Insurable Interest”:
    I own a car. I informally loan it to my brother to use 100% of the time, but I retain the title. My brother takes out an Arizona-state-minimums auto liability policy on this vehicle. He depends on this vehicle to get around (although he is currently unemployed). Does he have an “insurable interest”? Or, less academically, will the insurance company actually cover him (us) in the event he (we) are sued? Is there some documentation or statement we should obtain now from the insurance company to ensure that we are covered for the future?

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