What is meant by insurable interest?

Insurable interest refers to a situation where a person or entity has a direct financial interest in the subject of the insurance policy. This means that the insured party stands to suffer a financial loss if the insured item or individual is harmed, damaged, or lost. For example, if you own a car, you have an insurable interest in it because if it were to be damaged or stolen, you would incur a financial loss. This principle is crucial in insurance because it ensures that the insurance contract is valid and prevents moral hazard, where individuals might otherwise take undue risks if they could profit from an insurance payout without having a genuine stake in the insured property or person.

The other options refer to concepts that do not accurately capture the essence of insurable interest: a financial interest in a personal relationship is too vague and not directly connected to insurance; a legal right to make insurance claims does not encompass the essential component of a financial stake; and a philosophical approach to risk management does not relate to the practical, financial implications that insurable interest embodies.