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					      Chapter Three

The Principle of Insurable

1. The meaning of insurable interest
2. The significance of insurable interest
3. The application of insurable interest
4. When does insurable interest begin to exist?
5. Common features of insurable interest
1. The meaning of insurable interest

“the legal right to insure arising out
 of a financial relationship, recognized
at law, between the insured and the
subject matter of insurance.”
                         ---CII textbook
   “an insurable interest refers to the
    interest which the applicant has in the
    subject matter of the insurance and is
    recognized by laws.
   The subject matter of the insurance
    refers to either to the property of the
    insured and related interests associated
    therewith, or to the life and body of the
    insured, which is the object of the
    insurance.”                   ---Insurance Law
  2. The significance of insurable interest


                 Guarding          Controlling
               against moral       sum insured
3. The application of insurable interest

                   in life

   The         his      His        his
 applicant   spouse    parents   children
Insurable interest in property insurance
• it often arises out of ownership where
  the insured is the owner of the subject
  matter of insurance.
• house-owner can insure his house
• A shopkeeper can insure his stock
     Insurable interest in liability
• a person has insurable interest to the extent
  of any potential legal liability he may incur
  by way of damages and other costs.
   4. When does insurable interest
          begin to exist?

• In marine insurance contract, the
  insured must be interested in the
  subject matter insured at the time of
• Insurable interest in life insurance
  is only required at inception.
                    5. Common features
                      of insurable interest
5.1 Insurer’s insurable interest

Insurance companies have insurable
 interest in their liability to pay claims to
This interest gives them the right to seek
         5.2 Insurable interest
        being enforceable at law
If a policy is taken out without insurable
  interest, it means the insurance is
If it is a life insurance policy taken out as a
  gamble on someone’s life, such policy would
  be void and illegal.
5.3 Insurable interest in possession

Lawful possession of property normally has
insurable interest if that possession is
accompanied by responsibility.
     5.4 Financial valuation
Generally speaking, the amount of
 insurable interest must be capable of
 financial valuation.
   5.5 Assignment of insurable interest

• Assignment of policy referring to transfer of
  rights can be carried out. But in the case of
  personal contracts, it requires the consent of
  the insurer.
                   Case study


   1. A visitor came to Shanghai for sightseeing.
After he visited the Tower of Eastern Pearl, he
wanted to pay premium to insure the Tower in
order to protect the property. Do you think the
Insurance company agrees to accept his offer?
                Case study
 2. John and David are businessmen and friends
in the same company. In July, 2000, John
wanted make his own way. He resigned from
his job and became a self-employed man.
When he began to open his business, he was in
great of need of circulating funds, so he asked
David for help, promising to pay more interest
higher than that of the bank and pay his money
after one year on time. In order not to let David
have worries, John mortgaged his Honda to him.
With the consent of John, David bought one-
year motor vehicle insurance in his own
name from the insurance company.
Six months later, When John drove the car
to work, an accident occurred, the car was
overturned and damaged totally. He was
seriously wounded. On hearing the bad news,
David reported the case to the insurance
company and made claims to it.
Discuss: Do you think the insurance
company should pay the claims or not? Why?

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