An insurable interest describes a monetary risk that can be protected by insurance.
This basically means that almost all types of insurance policies are conceptualized to provide coverage for insurable interest.
If there is no insurable interest, then there’s no policy that can give that risk coverage protection.
In real estate insurable interest is most common with policies like:
For example, in terms of mortgage insurance, such policies protect a lender from financial losses that can be incurred should a loan defaults due to the death or permanent disability of the main income earner of a family.
When the insurable interest has a decreasing risk over time, premiums would be reduced. This is the case with mortgage insurance as the outstanding debt reduces over time, resulting in reductions in premium required.
This is in contrast with general health insurance whereby the risks of health problems rise over time as people age. Thus, premiums rise as people get older.
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