What does "Insurable Interest" refer to?

Insurable interest refers to the financial stake or interest that an individual has in a property or life, which must exist in order to purchase insurance on that property or life. This principle ensures that the person taking out the insurance policy will suffer a financial loss in the event of damage, loss, or death associated with the insured item or individual. Having a financial interest establishes a valid reason for the insurance coverage, as it prevents moral hazard—where someone might deliberately cause a loss for personal gain since they have nothing to lose.

While potential profit from an investment, professional interests, and emotional attachments can relate to how people value certain assets, they do not fulfill the requirements or implications of insurable interest. The essence of insurable interest lies specifically in the financial implications tied to ownership or responsibility, making it a foundational concept in risk management and insurance.