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15 September 2021

Insurable Interest; What Can You Insure?

Plant wrapped with a jar full of coins

When you go to insure something, in order to successfully take out an insurance policy, you must have Insurable Interest in the risk being covered.

In recent articles we have examined:

While all of these areas of insurance theory are important to your coverage, without Insurable Interest no insurance can be obtained. As such, it is critical that we examine Insurable Interest and understand what risks you are able to insure.

What is Insurable Interest?

In order for an insurance agreement, or contract, to be valid, it must be established on the basis of the policyholder’s insurable interest for the risk being covered. For the purposes of this definition, and for the needs of insurance in Hong Kong, we can assume that the “interest” of the policyholder means a financial relationship.

Therefore, a good definition for insurable interest would then be; an entity’s legally recognized relationship to the subject matter of insurance, which gives them the right to effect insurance on it.

We have established that “Interest,” within Hong Kong Insurance, means a financial relationship. Taking the definition of the principle of “insurable interest” we then understand that the any relationship must be a legal one and recognized under Hong Kong Law.

Immediately obvious is the example that a criminal in possession of stolen property does not have insurable interest on his ill-gotten gains. The criminal’s relationship with the stolen property is not a legally recognized relationship under law, and consequently any insurance taken out on the stolen goods would be void.

Establishing Insurable Interest in Hong Kong

In order for insurable interest to exist, a number of criteria must be satisfied.

  1. The insurance must cover a person (their life, limbs, health), property, Liability, or legal right which is capable of being insured.
  2. The risk being covered must be the subject matter of the insurance. The claim is payable upon mishap to the subject.
  3. The proposer must have a legally recognized relationship to the subject matter of the insurance.

On first blush, this may seem relatively straight forward, especially as we have stated above that interest, in this context, can be taken to mean a “financial relationship.” However, a financial relationship alone is not enough to create insurable interest. A credit lender, for example, may have insurable interest on a debtor’s life, but would not have insurable interest on the debtor’s property unless that property had been mortgaged to the lender.

The thing being insured (life, property, legal right) and the legal relationship between the proposer (policyholder) and the subject of insurance are doing a lot of the heavy lifting when it comes to establishing insurable interest. With these two aspects in mind, it is perhaps easier to think of insurable interest in Hong Kong as being the right to take insurance to protect against the risk of a loss should the insured event occur.

Creating Insurable Interest

Insurable interest can arise from a number of circumstances, across a number of different product classes.

It should be further noted that any Agent with the authority to enact insurance on behalf of a principal is considered to have the same insurable interest as their principal.

Interest for Insurance of Property

If you have absolute ownership of something, you are assumed to have all legal rights of insurable interest on that property. Full ownership of your home or apartment would fulfil the insurable interest requirements for Fire Insurance, and as owner of your vehicle you automatically have insurable interest on it.

Interest for Insurance of a Person

Every individual has an insurable interest on their own person. This includes their life, limbs, and risk of long-term illness. This same right exists for your spouse (you may insure your spouse as if you were insuring yourself) and any child or ward in your guardianship under the age of 18.

Interest for Insurance of Legal Rights

If you are at risk of a loss due to an infringement of your rights or deprivation of future income you have the right to insure against that risk. Landlords obtaining coverage to protect against loss of rent following a fire would be a good example of creating interest for insuring your legal rights.

Interest for Insurance of Liability

You have interest to insure against potential legal liability for your own acts and/or omissions. Often known as primary liability, or direct liability, this insurance is sometimes compulsory. For example, Insurance Brokers in Hong Kong are required, at law, to hold Professional Indemnity Insurance. It is also possible to create interest to insure against vicarious liability; Director’s and Officer’s Insurance would be a good example of vicarious liability protecting an employer against their employee’s errors and/or omissions.

When is Insurable Interest Required?

For most types of insurance, insurable interest is required at the time a loss occurs. If for example, you have a home contents insurance policy that states a specific piece of jewelry is to be covered, and you sell that jewelry, then your insurable interest on the item is lost – no matter what happens to the jewelry now.

However, in the case of Life Insurance, insurable interest is only required at policy inception, when the insurance is created. As you are automatically assumed to have insurable interest on your spouse, you can create a life insurance policy for them at any time during your marriage. The policy is still valid even if you should separate or divorce, because you had insurable interest at the time the coverage was created.

Learn more about insurance in Hong Kong

CCW Global is an expert international insurance broker able to offer advice on a number of different insurance classes including both Personal Lines and Professional/Financial Products. As an insurance broker we are obligated to represent your interests, and work for you not the insurance companies.

All quotations and advice offered by our brokers is provided free of charge, and without obligation or risk. We work to ensure you understand what it is you are purchasing, and that you are able to make an informed decision about the coverage that best fits your specific, and unique requirements.

For more information, or to receive a free Hong Kong Insurance quote, please Contact us today.

About Author

Michael Lamb is an insurance industry professional with many years of experience within the Hong Kong Insurance market. Focusing on APAC coverage issues, Michael is able to provide extensive analysis and insight to a range of pressing topics. Previously, Michael provided insurance broker Globalsurance.com with their most highly valued articles and was a key influence in the development of all the content on Pacificprime.com, Michael has a passion for insurance matched by few others in the region.

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