Mississippi Property & Casualty Practice Exam

When must insurable interest exist in property insurance?

1. At the time of policy purchase

2. During the entire policy duration

3. At the time of loss

4. Whenever a claim is filed

The correct answer is: At the time of loss

In property insurance, insurable interest must exist at the time of loss. This requirement ensures that the insured has a legitimate stake in the property being covered, meaning they would suffer financially if the property were to be damaged or destroyed. The concept of insurable interest is fundamental in preventing moral hazards, where an individual might deliberately cause damage to gain from the insurance payout if they had no financial interest in the property. The reasoning behind this requirement is that, to file a successful claim, the insured must demonstrate that they would incur a loss if the insured property were to be harmed. Therefore, while having an insurable interest when purchasing the policy can be important, the critical moment is when the actual loss occurs. This prevents individuals from profiting from insurance claims on property they do not have a vested interest in at the time of the incident, maintaining the integrity and purpose of insurance.