What is required for insurable interest?

Insurable interest is a fundamental principle in insurance that ensures the policyholder has a legitimate interest in the subject matter of the insurance. This principle is designed to prevent moral hazard and ensure that individuals are only insuring things in which they have a vested interest.

When considering the concept of insurable interest, the requirement that the policy owner must face the possibility of losing money or something of value when a loss occurs is central. This means that for an insurance policy to be valid and enforceable, the person taking out the policy must stand to suffer a financial loss if the insured event occurs. This justifies the need for the insurance coverage and integrates the principle of good faith into the insurance transaction.

By ensuring that the policyholder suffers a loss in the event of a claim, the insurance system maintains its integrity and reduces the potential for fraudulent claims. Thus, recognizing this financial interest is crucial for the establishment of a valid insurance policy.