Alberta General Insurance Level 1 Practice Exam

Insurable interest is a fundamental concept in insurance that indicates a financial stake in the subject being insured. This means that the policyholder must have a genuine economic interest in the preservation or protection of the insured item, which could include property, life, or health. The rationale behind this requirement is to prevent moral hazard, where individuals might otherwise benefit from the loss of an asset they do not own.

Having an insurable interest means that if the insured event occurs, the policyholder stands to suffer a financial loss as a result. For example, a homeowner has an insurable interest in their property because they own it and would incur financial losses if it were damaged. Similarly, a person would have an insurable interest in their life if they have dependents who rely on their income.

This concept is not about a mere belief in the value of insuring something or a general interest in reducing risk; it specifically pertains to a tangible financial connection to the subject of the policy. Additionally, while it is indeed a legal requirement for obtaining insurance, insurable interest specifically highlights the financial stake aspect, making it the most precise answer in this context.