The Principle of Insurable Interest

The principle of insurable interest means that the person purchasing an insurance policy must have a legitimate financial or emotional stake in the insured item or individual. This ensures they would suffer a genuine loss if something happens, preventing insurance from being used for gambling or speculation. For example, a homeowner has insurable interest in their house because damage would cause financial hardship. Without this interest, the insurance contract wouldn't be valid, as it could encourage dishonest claims or moral hazard. This principle maintains integrity and fairness in the insurance system.