Alberta General Insurance Level 1 Practice Exam

Insurable interest is a fundamental principle in insurance that requires the insured to have a legitimate and considerable connection to the subject of the insurance policy. This principle ensures that individuals or entities are only able to insure risks in which they have a genuine stake, meaning that they would suffer financial loss if the insured event occurs.

The presence of insurable interest serves to align the interests of the insured and the insurer, fostering a contractual relationship that is both honest and equitable. When the insured has a vested interest in the subject matter of the insurance, it reduces the likelihood of intentional losses or moral hazards, as the insured is less inclined to take actions that would result in a claim. This creates a fairer marketplace and helps maintain trust in the insurance process.

While other factors, such as reducing fraudulent claims and avoiding financial losses for insurance companies, are also important, they stem from the core principle of having insurable interest. Thus, ensuring that the insured has a substantial stake in the insured property or life is what fundamentally supports the entire process of insurance, making it essential for the integrity and sustainability of the insurance system.