Which concept prevents speculative policies and ensures indemnity only for genuine risk at inception?

• A. Indemnity
• B. Risk pooling
• C. Subrogation
• D. Insurable interest

Answer: (D)

Insurable interest is the requirement that the policyholder has a legitimate financial stake in the insured subject at the time the policy is issued. This means the person stands to suffer a loss if the insured event occurs, so the policy is tied to a real, genuine risk rather than to gambling on a victory. Because the insured would incur a real loss, the payout reflects actual indemnity rather than a windfall, keeping the contract focused on restoring the insured to their prior position. This prevents anyone from taking out policies on others or abstract risks just to profit from a claim. Indemnity, risk pooling, and subrogation describe related insurance principles, but they don’t specifically stop speculative policies or ensure indemnity only for genuine risk at inception like insurable interest does.