What is meant by "insurable interest" in insurance?

"Insurable interest" refers to the financial stake an individual or entity has in the property or life that is being insured. This concept is fundamental in the insurance industry and is designed to prevent moral hazard and insurance fraud. When a person possesses an insurable interest, it means they would suffer a financial loss if the insured event were to occur.

For instance, if you own a home, you have insurable interest in that property because any damage or loss would directly affect your financial well-being. Similarly, the insurable interest principle applies to life insurance, where a person generally has an insurable interest in their own life or the life of someone whose death would financially impact them, such as a family member or business partner.

This requirement ensures that insurance contracts are not used for speculative purposes and that the insured party has a legitimate reason to seek coverage.