Claims Adjuster Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

To successfully purchase an insurance policy on property or the life of another individual, the individual must demonstrate insurable interest. Insurable interest means that the policyholder has a legitimate interest in the preservation of the property or the well-being of the person being insured. This concept is crucial in insurance as it helps prevent moral hazard and ensures that individuals are not incentivized to cause harm or damage.

For instance, when it comes to life insurance, a person typically must show that they have a close relationship with the insured individual, such as being a family member or a business partner. This relationship creates a financial interest in the insured's life, as the policyholder would suffer a financial loss should that person pass away.

In the context of property insurance, insurable interest implies that the policyholder must have a stake in the property, such as ownership or a financial investment in it. Without this demonstrated interest, the insurance contract may be considered void, as there is no legitimate reason for the person to insure the property or life.

Although options like proof of residency, proof of income, and a valid driver's license are important for other financial transactions or services, they do not establish the necessary legal and ethical grounding to support an insurance contract.