What does insurable interest require from a policyholder?

Insurable interest is a fundamental principle in insurance that ensures the policyholder has a legitimate reason to insure the life or health of another individual. This means that the policyholder should have a financial stake in the life or health of the insured person, as it provides a basis for insurance coverage.

This requirement helps prevent fraudulent activity, as it ensures that individuals only take out policies on those whose loss would genuinely impact them financially. For instance, a parent could have an insurable interest in their child's life or health because they are responsible for their upbringing and may suffer financial loss if something were to happen to them. Similarly, a business could have insurable interest in a key employee whose role is critical to its success.

Personal connections or emotional bonds, while they can add to the rationale for taking out a policy, do not satisfy the legal requirement for insurable interest on their own. Financial stakes must be present to establish a legitimate, enforceable insurance contract. Thus, the requirement of having a financial stake solidifies the integrity of the insurance system and ensures that all parties involved have a vested interest that aligns with the purpose of the insurance contract.