What is the concept of insurable interest?

The concept of insurable interest is grounded in the principle that a policyholder must have a legitimate financial interest in the subject of the insurance policy. This means that the policyholder would suffer a financial loss or hardship if the insured event occurs, such as the death of a loved one, damage to property, or loss of income.

Having insurable interest ensures that insurance is used as a risk management tool rather than a gambling mechanism; it emphasizes a financial relationship between the insured and the policyholder. This requirement protects the integrity of the insurance system by discouraging insurance fraud and moral hazard, as it prevents individuals from taking out policies on properties or lives in which they have no financial stake.

In contrast, the other options do not accurately represent the essence of insurable interest. The desire to profit from an event suggests speculation rather than a genuine financial stake, while the expectation of return on investment relates more to investment strategies than to insurance. Lastly, the need to insure property for its market value focuses on valuation rather than the required financial interest that links a policyholder to the insured entity.