What constitutes a legal subject or purpose in an insurance policy?

The correct answer is based on the principle of insurable interest, which is fundamental in insurance contracts. Insurable interest occurs when the insured party stands to suffer a financial loss if the insured event occurs. This requirement is crucial because it ensures that the purpose of the insurance contract is legally justified: the insured party has a legitimate interest in the preservation of the life or property being insured.

When the insurance policy is created with insurable interest established at the time of the loss, it reflects a responsible and valid contractual arrangement between the insurer and the insured. This underpins the notion of risk management in insurance, where the insurance industry operates based on this principle to prevent moral hazards and ensure that claims made align with genuine financial interests.

In contrast, policies that benefit only the insurer, cover all risks without exceptions, or are against public policy do not meet the necessary legal standards to qualify as valid insurance contracts. These alternatives could result in situations that are impractical, unethical, or legally unenforceable, thereby failing to serve the intended purpose of providing security and protection against risks.