Mississippi Property & Casualty Practice Exam

What is a critical factor that establishes insurable interest?

1. Monetary value

2. Time of loss

3. Relationship

4. Property value

The correct answer is: Relationship

Insurable interest is fundamentally based on the relationship between the policyholder and the property or person being insured. This legal concept requires that the insured party must have a stake in the subject matter of the insurance, meaning they would suffer financially or emotionally from a loss. For instance, a person has insurable interest in their own property because they own it and have the potential to lose financially if it were damaged or destroyed. When considering the provided choices, while monetary value, time of loss, and property value are all relevant aspects of insurance, none establish insurable interest as directly as the type of relationship. It is the connection between the insured and the insured item or person that legitimizes the insurance contract, ensuring that the policyholder has a valid reason to purchase the insurance. This principle helps prevent moral hazard and ensures that the insurance system remains functional and fair.