Insurable Interest
Definition
A financial stake in the preservation of the insured property or person. You must have an insurable interest to purchase insurance — meaning you would suffer a financial loss if the insured property were damaged or destroyed. This prevents speculation and ensures insurance serves its purpose of indemnification.
When This Matters
You can insure your own home because you have an insurable interest. You cannot insure your neighbor's home because you would not suffer a financial loss if it burned down.
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