What is the main purpose of insurable interest in insurance contracts?

The main purpose of insurable interest in insurance contracts is to establish legal standing for claims. Insurable interest refers to the requirement that the policyholder must have a legitimate interest in the subject of the insurance, which means they would suffer a financial loss if the insured event occurs. This principle is essential because it prevents individuals from taking out insurance policies on items or people they have no genuine connection to, which could potentially lead to fraudulent claims or encourage moral hazard.

By ensuring that the policyholder has an insurable interest, insurance companies hold the right to validate claims, thus providing a basis for the insured party to receive compensation in the event of a loss. This legal framework helps maintain the integrity of the insurance system and protects insurers from undue financial risk.