What is meant by insurable interest?

Insurable interest refers to a financial or emotional stake that one individual has in the life or health of another person, which is necessary for an insurance policy to be valid. This concept ensures that the policyholder will suffer a loss if the insured event occurs, thus preventing insurance from being used for speculative purposes.

Having an insurable interest means that the policyholder would suffer a financial loss or a disadvantage if the insured were to pass away or experience health issues. For example, a parent has an insurable interest in their child's life because the loss would represent both an emotional and financial burden. This requirement is essential to prevent moral hazards where individuals might purchase insurance on the lives of strangers for potential profit.

Other options describe concepts that do not accurately capture the necessary elements of insurable interest. Speculating on someone's life is contrary to the concept, as it implies a lack of personal stake or financial interest. Similarly, while beneficiaries are relevant in the context of life insurance, the requirement of insurable interest specifically pertains to the policyholder's relationship to the insured. Lastly, emotional attachment alone does not suffice as an insurable interest; there needs to be a demonstrable financial stake involved. Thus, identifying insurable interest as a personal stake in the value of the