An insurance principle that prevents a person from insuring what he does not stand to lose financially if the insured risk occurs is

Insurable interest is the principle that a person can only take out insurance on something they will suffer a genuine financial loss from if the insured event happens. It stops people from insuring property or lives they have no financial stake in, which would otherwise turn insurance into a form of gambling on someone else's misfortune. For example, a person can insure their own house because they would lose money if it burned down, but they cannot insure a stranger's house because its destruction would not cost them anything.

The other principles apply after a valid insurable interest already exists. Proximate cause is used to identify the main or dominant cause of a loss when deciding whether it is covered. Indemnity ensures that a policyholder is restored to their financial position before the loss occurred, not given more than they lost. Subrogation allows the insurer, after paying a claim, to take over the insured's right to recover losses from a third party who caused the damage.

Examination reminder: insurable interest is checked at the very start, before a policy is even valid, because it answers the question of whether this person would actually lose money if the risk occurred.