By Tokiso TKay Nthebe
Insurance is one of those things that feels undeniably adult, yet few of us really understand it until we’re faced with a claim or a crisis. It’s packed with complex terms — indemnity, exclusions, beneficiaries, and insurable interest — that often leave people signing policies without fully grasping what they mean.
But here’s the truth: understanding how insurance works is a cornerstone of financial planning and financial wellness, especially if you’re building a business, freelancing across borders, or managing your family’s financial future.
At TKO Financial Wellness, we believe financial education should be simple, accessible, and practical. Let’s break down one of the most important — yet often misunderstood — insurance principles: insurable interest.
What Is “Insurable Interest”?
In plain terms, insurable interest means you must stand to lose financially if the insured person or asset is damaged, lost, or dies.
Let’s make this practical:
✔️ Thabiso, a young professional, buys a Toyota Starlet for $15 556 (equivalent LSL 280,000). If the car is stolen or damaged, Thabiso would face a direct financial loss. That gives him insurable interest in the vehicle.
✔️ Nthabiseng, a single mom raising two kids, earns the income that supports her household. If something happened to her, her children would lose their financial stability. Her children, therefore, have insurable interest in her life
In short:
✅ If you’d suffer a financial loss, you have an insurable interest.
❌ If you wouldn’t lose anything, you can’t insure it.
Why Does Insurable Interest Matter?
Insurance is a legal contract, not just a checkbox on your to-do list. For that contract to be valid — and for your claim to be paid — you must have insurable interest at both the time you take out the policy and when the event occurs.
Without it, your insurer can legally deny your claim.
You can’t insure your neighbour’s house, your ex’s life, or a car you’ve already sold.
Understanding this concept is essential for:
- Avoiding claim rejections
- Protecting your financial health
- Making sound financial planning decisions
- Building long-term trust with your insurer
- Practising responsible risk management
How Does Insurable Interest Work in Real Life?
1. Short-Term Insurance (Cars, Homes, Valuables)
Let’s revisit Thabiso. He sells his car but forgets to cancel the insurance. If the new owner crashes it, Thabiso can’t claim — because he no longer has an insurable interest.
Pro Tip: You must own or benefit from the item both when you insure it and when the loss occurs.
2. Long-Term Insurance (Life, Funeral, Disability)
In life insurance, Nthabiseng’s policy will pay out to her children — the people with an insurable interest — if she passes away while the policy is active and premiums are up to date.
According to the Ombudsman for Long-Term Insurance, insurable interest typically applies to:
- A spouse or life partner
- Children (biological, adopted, or dependent)
- Parents or guardians
- Business partners (in specific circumstances)
Pro Tip: Always read your policy’s terms and conditions. Not all relationships automatically qualify.
Why Every Professional, Freelancer, and Business Owner Should Care
Insurance isn’t just for the wealthy — it’s a foundational part of your financial wellness strategy.
If you’re a:
- Freelancer or consultant, you likely don’t have employer-provided benefits. Protecting your income with health, disability, or life cover is key.
- Breadwinner, supporting family members or dependents, you need insurance to safeguard those who rely on your income.
- Business owner, you may need partnership insurance, key person cover, or asset protection to manage liability and succession risks.
- Young professional, building your asset base, insurance helps protect your savings, investments, and long-term goals from unexpected setbacks.
Understanding insurable interest ensures you buy the right cover for the right reason — not just to comply, but to truly protect your financial future.
Insurance, Financial Planning, and the Bigger Picture
Insurable interest isn’t just about policies — it’s about responsible wealth building.
It ties directly into:
- Estate planning – ensuring your loved ones or business partners benefit legally when something happens to you.
- Retirement planning – protecting your income and savings throughout your working years.
- Financial health – managing risk, preventing debt, and securing long-term stability.
- Fintech innovations – new digital platforms are making insurance more accessible across Africa and beyond.
As digital finance evolves, so does how we manage risk. Whether you’re in Lesotho, Johannesburg, Nairobi, or London, the principle remains universal: you can only protect what’s rightfully yours — and what would cause you financial loss.
Final Thoughts
Don’t let insurance jargon intimidate you. With the right knowledge, insurance becomes more than a “grown-up task” — it becomes a powerful tool for financial security.
Remember:
Insurable interest is one piece of the puzzle. In our next article, we’ll unpack indemnity vs. non-indemnity insurance — and how to choose the policy that fits your goals.
If you’re unsure whether your current cover aligns with your financial plan, talk to a licensed financial advisor or reach out to us at TKO Financial Wellness.
Until then — plan smart, protect what matters, and keep building your financial health.
Stay Trailblazing 💙!
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.
