The principle of insurance that demands that the insured must stand to loss in the event of a loss before taking a policy is

Answer Details

The principle of insurance that demands that the insured must stand to loss in the event of a loss before taking a policy is "insurable interest." Insurable interest means that the policyholder must have a financial stake or an interest in the property or person being insured. In other words, they must stand to lose something if the property or person is damaged or lost. For example, a person cannot purchase insurance for a car they do not own or have any financial interest in, such as a rental car. Similarly, a person cannot purchase life insurance for a stranger because they do not have any insurable interest in that person's life. Insurable interest protects against the moral hazard of purchasing insurance on something that the policyholder has no financial attachment to, which could lead to fraudulent claims.