What is an "insurable interest"?

An "insurable interest" is defined as a financial stake in the insured property or entity. This concept is fundamental in insurance law and requires that the policyholder has a relationship with the property or person they wish to insure, which would cause them to suffer a financial loss if that property were damaged or that person were to suffer loss. The presence of an insurable interest helps to prevent moral hazard, ensuring that individuals do not take out policies on entities or properties in which they have no genuine financial concern.

In practical terms, when someone has an insurable interest in property, it means they would be financially impacted by its loss or damage, thus justifying their need for insurance coverage. For example, homeowners have an insurable interest in their properties, as they stand to lose money if the house is damaged.

The other choices do not accurately reflect the concept of insurable interest: it is not merely a requirement for insuring all personal belongings, nor does it involve legal clauses for claims on behalf of others, or serve specifically as a condition for issuing high-risk policies.