Chartered Life Underwriter Exam 2025 – 400 Free Practice Questions to Pass the Exam

The principle of insurable interest is fundamentally about ensuring that the person purchasing an insurance policy has a legitimate interest in the preservation of the life or property being insured. This principle serves to prevent moral hazard and ensures that insurance contracts are fair and valid.

An individual's love and affection for family members creates a significant stake in their well-being. This emotional connection provides a basis for insurable interest, as the policyholder would suffer a genuine loss if a family member were to die or suffer damage in the insurance context. Therefore, relationships stemming from love and affection can indeed provide the necessary insurable interest as it recognizes the emotional and financial stakes people have in the lives of those they care for.

While the other options touch upon aspects of insurable interest, they do not fully encompass the principle. Legal contracts and business relationships may define some types of insurable interest, but insurable interest extends beyond these confines. It's not solely about economic interests or relationships defined by law; it also encompasses the deeper personal connections that individuals have with one another.