Part 3: Principles of Insurance
Paper I — Principles and Practice of Insurance · Part 3: Principles of Insurance
Further reading: Principles of Insurance study notes →
Which of the following statements about the Definition of Insurable Interest are correct? I. Insurable interest is a legally recognised financial relationship between the insured and the subject matter, capable of valuation in money. II. Insurable interest refers solely to the contractual relationship between the insured and the insurer. III. Insurable interest is a purely moral or emotional concern of the insured towards the subject matter.
Why: Insurable interest is a legally recognised relationship between the insured and the subject matter. The relationship must be financial and capable of valuation in money. Without insurable interest, the contract is void and treated as wagering.
One of the main purposes of the insurable interest principle is to:
Why: Insurable interest prevents the use of insurance for gambling or speculation. It also helps reduce moral hazard and over-insurance. This ensures the insurance contract has a legitimate purpose.
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