Question

Which of the following statements regarding insurable interest is NOT correct?

1. Insurable interest exists when the applicant is the insured.
2. A policy obtained by a person without an insurable interest in the insured can be enforced.
3. The applicant must be subject to loss upon the death, illness,or disability of the insured.
4. Generally, the person to be insured must give consent before a policy is issued, even if the applicant has an insurable interest.

Answer 1

2. A policy obtained by a person without an insurable interest in the insured can be enforced.

The incorrect statement about insurable interest is that a policy can be enforced even without it, which is not true as it's required for the validity of an insurance contract.

Step-by-step explanation:

The statement regarding insurable interest that is NOT correct is: 'A policy obtained by a person without an insurable interest in the insured can be enforced.' This statement is false because for an insurance contract to be valid, the policyholder must have an insurable interest in the insured.

An insurable interest exists when the policyholder is likely to suffer a genuine loss or detriment if the insured event occurs. It establishes that the person purchasing the insurance policy has a lawful reason to insure the individual or item and stands to suffer financially if a loss occurs.

This concept helps to prevent gambling and moral hazard—when someone might be tempted to gain from an insured loss. Consent is generally required from the person to be insured even if insurable interest is present, ensuring that insurance practices adhere to legal and ethical standards.