Which statement about insurable interest is true?

• A. It can be established by sentimental attachment alone
• B. It must exist only at time of loss
• C. It is not required in life insurance
• D. It may be established by a financial stake

Answer: (D)

Insurable interest is about ensuring the policy serves to cover a real economic loss, not a wager. In life insurance, the policy owner must have a financial stake in the insured so that the death or illness would cause a tangible economic detriment. That’s why establishing a financial stake makes sense as the true basis for insurable interest. Sentimental attachment alone does not create insurable interest because it doesn’t tie to potential financial loss. The requirement applies at the time the policy is issued, not only at the time of loss. And insurable interest is indeed required in life insurance to prevent wagering or speculative purchases. So the statement that it may be established by a financial stake is the correct one.