What is the purpose of the insurable interest requirement?

The insurable interest requirement is fundamentally designed to prevent insurance fraud. This principle stipulates that a person must have a legitimate interest in the continued existence of the subject of insurance (in this case, a vehicle) to obtain coverage for it. This means that the insured must stand to suffer a financial loss if the vehicle is damaged or destroyed.

By enforcing this rule, insurers reduce the likelihood of individuals intentionally causing damage to property for the purpose of collecting insurance payouts. If someone could insure a vehicle they do not own or have no direct financial interest in, they might be incentivized to commit fraud, such as destroying the vehicle to benefit from the insurance settlement. Therefore, the requirement serves as a critical measure in maintaining the integrity of the insurance system and ensuring that claims are legitimate and based on actual loss or damage.