What does insurable interest refer to?

Insurable interest refers to a financial stake in the insured subject, which is a fundamental principle in insurance. This means that the person or entity purchasing an insurance policy must have a legitimate interest in the preservation of the life or property that is being insured. If an event were to occur that causes loss or damage, the individual with insurable interest would suffer a financial loss, thus legitimizing their claim on the policy.

Having insurable interest is critical as it helps prevent moral hazard, where individuals might be encouraged to cause loss or damage intentionally if they stand to gain from the insurance payout without having a vested interest in the asset. The concept ensures that insurance is utilized for managing risk rather than as an opportunity for profit from loss.

The other options do not capture the essence of insurable interest: claiming damages is a result of having such interest, the value of the policyholder's assets may relate to other financial concepts but doesn't define insurable interest, and the cost of future claims is more about estimating liabilities rather than establishing a financial interest in the subject of the insurance.