What is insurable interest in car insurance?

If you're new to the world of car insurance, you may not be familiar with the insurance term "insurable interest". But as the owner of a car, a home or any other high-ticket item, you may want to get familiar with this term as it pertains to you. So, what is insurable interest? And what if you're not the owner of the car? Let's dive in.

Understanding insurable interest

Insurable interest is essentially about protecting something you stand to lose financially. If losing or damaging an item, event, or action would cause you financial hardship, you have an insurable interest in it.

When you have an insurable interest, you can take out an insurance policy to protect that person, item, or event. This policy helps reduce the risk of loss if something unexpected happens, like damage, theft, or another type of sudden and accidental loss.

Having insurable interest is a key requirement for issuing any valid insurance policy. It ensures the policy is legal and prevents abuse, such as intentionally harmful acts. If you wouldn’t suffer a financial loss from the event or item, you don’t have an insurable interest, so you wouldn’t be able to buy insurance for it.

What is an example of insurable interest?

An example of insurable interest is a car or a house. Since you have a legitimate reason to insure either one and a vested interest in keeping them in good shape, that makes them insurable interests.

When must insurable interest be present?

Insurable interest must be present when applying for an insurance policy. The insurance company must see that you would face financial or other hardships if something were damaged or lost before they approve your insurance policy.

How insurable interest applies to car ownership

In simple terms, insurable interest means you have a legitimate reason to insure something—like a car—and a vested interest in keeping it in good shape. If you own the car, that ownership is your insurable interest, as the car represents an investment you want to protect.

Is insurable interest necessary to get a car insurance policy?

Yes. Insurance companies require proof of insurable interest when creating policies. Insurable interest is basically proof that you would face financial or other hardships if something were damaged or lost. Insurance companies check for this during the underwriting process to make sure there’s a clear connection. It’s a requirement for any insurance policy.

As such, when you apply for your own insurance policy, you'll need to show proof of your insurable interest—your car. This is usually as straightforward as providing your car's registration or title.

Insuring a car not in your name

Owning a vehicle qualifies as insurable interest because it’s your investment, and you have a clear reason to protect it. However, if you don’t own the car, insurance companies may hesitate or even refuse to provide coverage, as this situation can sometimes signal potential fraud. For example, someone may try to insure someone else's car so that they can later damage it and collect the insurance money themselves.

As we mentioned earlier, when you apply for auto insurance coverage, you’ll need to show proof of insurable interest, usually through the car’s title or registration. Without these, it can be more challenging to prove your case and qualify for a car insurance policy.

Before trying to prove insurable interest for a car that’s not in your name, check whether it’s even allowed where you live. For example, in places like Ontario, only the registered owner of a vehicle can purchase insurance for it.

What is a moral hazard in car insurance?

In car insurance, a moral hazard happens when someone has an incentive to damage or lose their car just to collect the insurance payout. For example, someone might buy a comprehensive policy and then purposely wreck their car to get the money. Insurable interest helps prevent this by making sure the person getting the insurance has a genuine financial reason to protect the car, not profit from its loss.

Adding an additional interest

If you need to insure a car that isn’t in your name, the simplest option is to add the vehicle’s owner to your insurance policy as an additional interest. Doing this won’t increase your premiums—it just acknowledges someone else’s insurable interest in the car.

Keep in mind, though, that if there’s an accident and a claim is paid out, the check will go to the vehicle’s owner—or the bank or lender if the car hasn’t been fully paid off—and not you.

Non-owner car insurance

Non-owner car insurance is a type of coverage for people who don’t own a car but drive regularly, whether they’re borrowing a friend’s car, renting one, or using car-sharing services. It’s designed to provide protection for drivers without their own vehicles. This may be another option in a case where you're trying to get car insurance for a car you don't own.

If you have a valid Canadian driver’s licence and don’t own a car, you can typically purchase non-owner car insurance. However, many insurance companies won’t offer this coverage if someone in your household, like a family member or roommate, owns a car you often borrow. In that case, you’d need to be added to their policy, even if it’s just as an occasional driver.

On the other hand, if you borrow cars from people outside your household, use rental cars frequently, or use car-sharing services like Zipcar or Communauto, non-owner car insurance could be a perfect solution for you. Non-owner car insurance usually just includes the basic mandatory coverage required in your province or territory.

Types of mandatory car insurance coverage in Canada

In Canada, carrying car insurance is mandatory if you own a vehicle and wish to drive it. If you are pulled over by law enforcement and cannot provide proof of insurance, you will face serious consequences, including fines, licence suspensions and maybe even jail time.

Depending on which province or territory you live in, you'll be required to carry a variation of the following liability car insurance:

• Liability coverage
• Uninsured motorist coverage
• Accident benefits coverage
• Direct compensation-property damage coverage

Optional car insurance coverage

In addition to mandatory coverage, there are several popular coverage options in Canada that drivers regularly choose to add to their car insurance policy for more extensive protection. Some of these include:

• Collision coverage
• Comprehensive coverage
• Accident forgiveness

Learn more from BrokerLink

Do you still have questions about insurable interest related to car insurance, or need advice on anything else related to car insurance? Reach out to BrokerLink! We are experts in the car insurance industry—we can help answer any questions you may have regarding it and even offer tips to help you save on car insurance.

You can reach us by phone, email, or in person at any one of our locations throughout Canada. No matter how you choose to get in touch, a BrokerLink insurance advisor will be happy to assist you. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.

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