Freightgate - Cargo Insurance Guide

Freightgate - Cargo Insurance Guide

7. Requirements for insurance:

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INSURABLE INTEREST: In order to purchase insurance, one must have an insurable interest in the subject of the insurance. Insurable Interest exists ONLY when three conditions are met. The insurance applicant must:

1. Face a personal risk of loss.
2. Have a legitimate financial interest in preserving the life or property being insured.
3. Not achieve a potential gain due to the insurance applied for.

ESSENTIAL ELEMENTS OF INSURANCE INTEREST:

Ideally, seven characteristics create an Insurance Risk:

1. Loss must be definite and definable

Losses insured against must be definite in terms of time and place.

2. Loss must be accidental

Losses are not insurable of they are caused by intentional acts.

3. The insurer must be able to calculate the chance of loss

The chance of loss must be predictable from accumulated historical data.

4. The law of large number should apply

There must be a large enough number of similar risks to allow predictions.

5. Loss must be great enough to create economic hardship

6. Insurance must be offered at a reasonable cost

7. Loss must not be catastrophic in nature

"Catastrophic" in this sense means war, nuclear risk, flood, etc.