When you have a legally recognized relationship with the insured subject (such as an individual or an asset), you possess an insurable interest. This includes not only physical parts like limbs and teeth, but even aspects such as one’s voice. Without an insurable interest, insurance coverage cannot be established, and such an agreement is legally invalid.
The most common example of insurable interest is property ownership. There are many other examples, such as employers who hire employees and custodians of assets.
Sometimes, a policyholder may terminate their relationship with the insured subject during the validity period of the insurance policy. Once this happens, the insurable interest will cease, and the coverage will automatically terminate. Common examples include the transfer of vehicle ownership or property transfer. In the event of such changes, the policyholder must notify the insurance company as soon as possible.
Indemnity refers to the money paid by the insurance company to compensate for your loss. However, this amount will not exceed your economic loss; it will only be sufficient to restore you to your financial status before the loss occurred.
For property insurance, if the insured item has depreciated when the loss occurs, the insurance company will only indemnify based on the depreciated value—this is the so-called “indemnity based on loss value principle”. Another calculation method follows the “indemnity based on reinstatement value principle”, where the indemnity amount is determined by the replacement value of the insured item at the time of loss, without accounting for depreciation.