What does the assessment of 'insurance interest' protect against?

The assessment of 'insurance interest' primarily serves to protect against the risk that a policyholder may take advantage of the insured. This principle ensures that an individual purchasing life insurance has a legitimate interest in the continued life of the insured person. An insurable interest exists when the policyholder would suffer a financial loss or some form of emotional distress if the insured were to die. This concept is crucial because it helps to prevent moral hazard, where individuals might have a motive to cause harm to collect on a policy if no insurable interest is established.

By requiring that the policyholder has a valid insurance interest in the insured, the industry aims to promote fairness and reduce the potential for fraud within the life insurance system. Options focusing on accidental death, delayed claims, or increased premiums do not directly relate to the foundational purpose of insurable interest. Thus, recognizing and enforcing this principle is essential for the integrity of life insurance practices.