Final answer:
An individual must have a valid concern, known as an insurable interest, for the life or well-being of the person insured to take out an insurance policy. This principle helps ensure that the policy serves as protection against loss rather than a wager. Risk groups and actuarial fairness also play a role in determining the premiums and coverage.
Step-by-step explanation:
The requirement that an individual must have a valid concern for the continuation of the life or well-being of the person insured is commonly known as an insurable interest. It is a fundamental principle in the field of insurance, particularly relevant to life insurance policies.
Understanding how risk groups, actuarial fairness, and the need for insurance companies to manage costs and investment income impact the overall insurance market is also crucial. Individuals have varied risk levels based on factors such as genetics, personal habits, and living conditions, which influences how premiums and coverage are determined.