[needhelpnow]

Which of the following statements correctly describes the requirement of insurable interest relating to property insurance? An insurable interest:

A. must exist when any loss occurs.

B. must exist when the policy is issued and when any loss occurs.

The correct answer is A.

The “insurable interest” doctrine has been developed to prevent individuals from purchasing insurance in the hopes that the insured property be damaged or destroyed. Although in most instances the insurable interest requirement is satisfied by “ownership,” this is not always the case (for example, a long-term lessee may have an insurable interest). The common law requires that the insurable interest in property exist at the time the loss occurs.

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But WHY? Doesn’t it make sense that you have insurance on something before hand and if something happens to the property, you are covered? By having insurance right when the loss occurs sounds wrong and more like fraud.

Thank you guys!

[needhelpnow]

anyone?

[CPA soon]

Just curious what chapter is this from? Using Becker?

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[needhelpnow]

This is Ninja CPA Mcq's…they have really good explanations and questions for a lot of stuff, just a few things require more understanding on my part

[Anonymous]

Try looking at this from a buyer/seller perspective. You can't have a policy issued on a specific item until buy it.

For example:

You sell heavy equipment at retail. You can't insure a piece of equipment before it is built (unless it's a one of a kind item) so you have a blanket policy that covers all of your purchases. You purchase a piece of equipment from the manufacturer and it is sitting on their loading dock waiting to be delivered to you. The terms of the sale require you to pay them for the equipment within 30 days. It is considered shipped and your property at this point, even though you haven't paid for it. Their warehouse burns to the ground including your piece of equipment. You are bound to the sales contract and you are required to pay for that equipment no matter what. Their insurance company pays them for their loss that doesn't include your equipment. Your insurance company pays you for your loss because you have already had to pay the seller per the contract.

It does sound a little like fraud, but almost all insurance is a little like fraud. It's really a way for one insurance company to shift the claim burden to someone else or another insurance company.

[needhelpnow]

@Kricket That makes sense! Thank you!

[Author]

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