Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What constitutes insurable interest?

1. A title of ownership on a property

2. A financial loss that would be suffered from a loss

3. An emotional attachment to an asset

4. Having rights to transfer the policy

The correct answer is: A financial loss that would be suffered from a loss

Insurable interest is a fundamental concept in insurance that ensures a policyholder will suffer a financial loss if the insured event occurs. Specifically, it refers to the financial stake or investment a person has in the property or life of another party that justifies taking out an insurance policy. When a person has insurable interest, it means that they stand to lose something of value—this could be financial, such as money tied up in property, or it could involve the financial consequences arising from the loss of a life whose passing might impact them financially, such as a spouse or business partner. This crucial element helps prevent insurance from being used as a gambling tool and ensures that the policyholder has a legitimate interest in the safety and value of the asset or individual insured. In contrast, having a title of ownership alone might suggest some degree of interest but does not inherently confirm that the loss would cause financial harm. Emotional attachment might signify a personal connection to the asset, but it does not address the financial implications relevant to insurance. Finally, having rights to transfer the policy doesn't directly relate to whether a financial loss would be suffered, which is the core definition of insurable interest.