By Tokiso TKay Nthebe
Insurance can feel like one of those grown-up things nobody teaches you about until it’s too late. It’s full of complicated terms like “indemnity,” “exclusions,” or “insurable interest,” and most of us just nod, sign the policy, and hope for the best.
But here’s the truth: understanding how insurance works is an essential part of your financial literacy journey, especially if you’re building a business, caring for family, or navigating the adulting maze across Africa.
At TKO Financial Wellness Money Academy, we believe financial education should be simple, accessible, and empowering. So today, we’re breaking down one of the most misunderstood principles in insurance education: insurable interest.
What Is “Insurable Interest”?
In plain English, insurable interest means you must have something to lose financially if the insured item or person is affected.
Let’s say Thabiso buys a brand-new Toyota Starlet for LSL280,000. If the car is stolen or damaged, Thabiso stands to lose real money. That makes him someone with insurable interest, because he would suffer a financial loss if something goes wrong.
Now flip it.
In the world of long-term insurance (like life cover or funeral policies), imagine Nthabiseng is a single mom raising two kids. If something were to happen to her, her children would be left financially vulnerable. That’s an insurable interest, too, because her children depend on her life and income.
In short:
- If you wouldn’t lose money when something bad happens, you can’t insure it.
- If you would lose money, you probably have insurable interest.
Why Does Insurable Interest Matter?
Insurance isn’t just about ticking boxes; it’s a contract between you and the insurer. And for that contract to be valid, you must have insurable interest in whatever you’re insuring.
Without it, you can’t claim. You can’t insure your neighbour’s house or your ex’s life. You can’t claim a car you’ve already sold. And you definitely can’t take out random policies on people you don’t rely on financially.
Understanding this is vital for:
Avoiding claim rejections Protecting your financial health Making better financial planning decisions Building trust in your insurer Practising responsible risk management
How Does Insurable Interest Work in Real Life?
Short-Term Insurance (Cars, Houses, Valuables)
Let’s go back to Thabiso. He buys a car and insures it. A few months later, he sells the car to someone else but forgets to cancel the insurance. If the new owner crashes it, Thabiso can’t claim—because he no longer has insurable interest.
Tip: You must own or benefit from the object when you insure it and when the event happens.
Long-Term Insurance (Life, Funeral, Disability Cover)
In the case of life insurance, Nthabiseng’s kids can only claim if she was alive when the policy started and all premiums were paid. If she passes away, her children—who have an insurable interest—can receive the payout.
According to the Ombudsman for Long-term Insurance, people typically have insurable interest in:
- A spouse or life partner
- A child (whether biological or not)
- A parent or guardian
- A business partner, in certain cases
Tips: Terms and conditions always apply, but these are common examples.
Why Every African Needs to Understand This
Insurance is not just for the wealthy. It’s a vital tool for financial planning and money management, especially for:
- Freelancers who don’t have employer benefits.
- Breadwinners who support siblings, parents, or children.
- Business owners navigating legal or liability risks.
- Young professionals building their first asset base.
Understanding concepts like insurable interest is part of growing your financial literacy as an African. It helps you ask better questions, buy the right cover, and protect your future with confidence.
Final Thoughts
Don’t let insurance jargon scare you off. With the right knowledge, you can use insurance as a powerful shield on your money adventures, not just a checkbox for adulthood.
Remember: Insurable interest is just one part of the puzzle. In our next article, I’ll explore indemnity vs. non-indemnity insurance—and how to know what kind of policy you need.
If you’re unsure whether you have the right cover, speak to a licensed financial advisor or reach out to us at TKO Financial Wellness. Until then, plan smart, protect what matters, and keep growing your financial health.
Stay Trailblazing!
Reach out to us at TKO Money Academy at https://tkofinancialwellness.com/academy/
We’re here to guide you through every step.
Tokiso TKay Nthebe is an author, podcast host, financial coach and lead advisor at TKO Financial Wellness & Advisory who is passionate about financial wellness, education and financial planning.
