Why is an insurable interest important?

An insurable interest is crucial because it is required to validate a claim. This means that in order for an individual or entity to purchase insurance and subsequently file a claim, they must have a legitimate interest in the insured property or life. This principle is foundational to insurance contracts, as it ensures that the policyholder would suffer a financial loss if the insured event occurs, thereby preventing insurance fraud. Without this requirement, individuals could potentially take out insurance policies on properties or lives in which they have no stake, creating moral hazards that undermine the integrity of the insurance system.

The other aspects of insurable interest, while related to the overall insurance process, do not hold the same critical importance in the context of claims validation. For example, while premiums and deductibles might be influenced by various factors, the essence of being able to make a valid claim hinges entirely on having an insurable interest.