Insurable interest is an important concept to understand, particularly as it relates to Michigan auto insurance.
Insurable interest is an insurance term that means the owner of an insurance policy must have a financial interest in any item they insure.
With auto insurance an insurable interest must exist both at the time a vehicle is originally insured and at the time a loss occurs.
On the surface this sounds simple: In order to insure a vehicle, and in order to collect insurance benefits if a loss occurs, you need to be a titled owner or leaseholder of that vehicle.
Unfortunately, insurable interest can become confusing when consumers either don’t understand the concept or, misguidedly, attempt to insure vehicles incorrectly.
A husband and wife are considered one legal entity by insurance companies. Therefore, one or both members of a married couple may be listed as the owner(s) of an insurance policy and either or both individuals may be listed as the titled owner or leaseholder of a vehicle insured on that policy.
Other than a married couple, for any vehicle to be properly insured, the named owner of an auto insurance policy must be a titled owner or leaseholder of the insured vehicle. This means:
- A parent cannot insure a child’s vehicle if the child is the sole titled owner or leaseholder of that vehicle
- Unmarried couples cannot combine their separate vehicles on one auto policy, unless the individual specifically named as the insurance policy owner is a titled owner or leaseholder of each vehicle
- Roommates cannot combine their vehicles on one auto insurance policy
- An individual cannot insure a “friends” vehicle out of the goodness of their heart – or because the friend is ineligible or unable to afford their own auto insurance
Some of those examples may seem obvious however, having been in the insurance business for over 25 years, I’ve encountered each of those situations numerous times.
The most common occurrence of individuals incorrectly insuring a vehicle is when a parent attempts to insure a vehicle that is solely owned by their child.
What frequently happens in this situation is ownership of a vehicle is transferred from a parent to a son or daughter when that child strikes out on their own. The youngster often receives a “sticker shock” when they obtain a quote for their own auto insurance policy – the pricing on their own likely missing some of the favorable advantages of being insured on their parents’ auto insurance policy including their parents’ good credit history, multi-car, and multi-policy discounts.
In that situation people sometimes mistakenly think a solution is to simply not tell their insurance company and leave the child and their vehicle on the parents auto insurance policy. Unfortunately this scheme to save on insurance costs can, and very likely will, backfire if there is a significant claim (see Michigan court case “Hoskins vs Miller“).
As mentioned earlier, insurable interest must exist both at the time a vehicle is originally insured and at the time a loss occurs. If there is a significant claim you can be assured your insurance company will review all pertinent details, including whether the policy owner had an insurable interest in the vehicle.
Making certain you are properly insured is a vital step to having the assurance your Michigan auto insurance policy will respond as expected if a loss occurs.