What does "insurable interest" require from the policyholder?

Insurable interest is a fundamental principle in insurance that requires the policyholder to have a legitimate interest in the continued life of the insured individual. This means that the policyholder must experience an economic or emotional loss if the insured were to die. This concept exists to prevent moral hazard and ensure that insurance is used for risk management rather than as a gambling tool.

When a person purchases life insurance on another individual, they must demonstrate that their relationship with that person creates a genuine stake in their life. This can include relationships such as family members, business partners, or employees, where the financial well-being of the policyholder would be adversely affected by the loss of the insured. Therefore, having a legitimate interest ensures the ethical use of insurance policies, making the coverage valid and enforceable.

The other options do not align with the definition of insurable interest. Having a stake in the financial performance of the insurance company, claiming assets of the insured, or being related by blood may not necessarily indicate that there is a valid and significant interest in the continued life of the insured person. Insurable interest specifically emphasizes the need for a financial or emotional connection that could incur a loss upon the death of the insured.