In general, a person can insure most things. However, there are some exceptions. For a risk to be insurable, the following five conditions must be present:
1. There must be an insurable interest (ownership) in the thing or person being insured. The insurable interest principle states that the insured must gain from its existence and suffer from its loss. For example, a person has an insurable interest in their own house because they paid for it and would have to spend money repairing it if damage occurred. However, they do not have a financial interest in their neighbour’s house and so could not insure that house. (Check out the Principles of Insurance movie on the Videos page for more examples featuring the principle insurable interest!)
2. There must be a large number of similar risks being insured.
3. Any losses incurred must be accidental.
4. The possible losses should not be too great as to ruin the insurance company.
5. It must be possible to calculate the risk of a loss occurring.
If any one of the five conditions is missing, the risk is uninsurable.
