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Insurable Interest Defined

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Insurable Interest defined – According to BusinessDictionary.com : True, valid, determinable, and direct economic stake of an insurance policy holder (or of the beneficiary of the policy) in the continued existence or safety of the insured property or person.

The keys here are the direct economic stake in the insured property (equipment) as in an equipment lease.

Why is insurable interest defined important to know?

Insurance is often not discussed in lease negotiations.  Insurance is often overlooked or ignored as a topic of lease discussion.  As with many other elements of a lease, additional costs do not help the cause of the sales person.   You should be able to identify the clause on insurance in the terms of the contract.  In addition, as lessee you should also feel free to contact the leasing company to ask them the cost of the insurance, whether it is applicable to your lease and to determine if your business insurance policy can be used to avoid the more costly insurance of the lessor.

What you need to know as a lessee about insurable interest

Chances are good you have to have insurance to cover the equipment you are leasing!

Important Note Concerning Insurable Interest Defined:

Whether a lease is a true lease or an installment sale may be hinted by whether or not the leasing company requires or forces placement of insurance on “leased” equipment.  For example, if the lease contract explicitly requires insurance on the leased equipment, but the lessor does not enforce it, it is probably because the title of the leased equipment resides with the lessee.  In this case, an installment sale exists and not a true lease.  In the case of a $1.00 buyout, this may be the case.  This is not a true lease, but a time purchase agreement.  However, the lessor may retain insurable interest and not transfer title until the end of lease.

UCC Article 2 as provided by law.cornell.edu explains this in detail in legal ease.