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United States District Court | Eastern District of Washington

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Insurable Interest Clause

You are required to have a financial interest in the car you are insuring

Insurable Interest requires you to have a legal interest in property you are insuring.

This means that you (the policy holder) must be the legal or registered owner of the property insured.

This used to be an issue when a teenager (not living at home) was given a vehicle as a gift (titled to him) by her parents.

The parents would add the vehicle to their policy and pay extra premium.

When there was a claim, the carrier would claim that the parents did not have an insurable interest in the vehicle, and therefore the insurance company did not owe for the loss.

Insurance carriers are taking premium and they are aware of the ownership situation. Because of this, they are no longer using this clause in their policies or not enforcing them.

In addition, many states have declared them illegal. If your insurance company is quoting this policy to exclude coverage, be sure to research your state legislation on this subject.

Your insurance company might just be trying to pull a fast one on you.

Insurable interest however is applicable in other circumstances.

This is the clause that bars coverage once you sell your car. The moment you sell your vehicle, your financial interest on the vehicle stops, and so does the policy coverage.

This is why, once you sell a car, the car must be insured by the person buying the car even if your policy has yet to expire six months down the road.

These issues become very confusing when you are taking payments for a car.

You still have a financial interest on the car (the portion not paid), but the buyer also has a financial interest (the part already paid).

Because of this clause, many insurance adjusters will be looking to see what kind of arrangement and purchase and sale agreement the parties performed.