Q7: The principle of insurable interest requires that the insured must have a financial stake in the insured item to prevent................... a) Increased profits from insurance claims. b) The ability to gamble on losses. c) Reduced premiums for coverage. d) Simplified insurance policies. Page 2 of 9

The principle of insurable interest is designed to prevent individuals from using insurance as a form of gambling. By requiring that the insured has a legitimate financial stake in the item or person insured, the law aims to eliminate the incentive to intentionally cause loss or damage simply to reap insurance benefits. It's all about ensuring that insurance remains a safety net, not a get-rich-quick scheme! In real-world applications, this principle holds significant importance in various insurance types including life, health, property, and auto insurance. For instance, a car owner must hold insurance on their vehicle, as they have a financial investment in it. Without this requirement, individuals could potentially take out insurance on properties they do not own, leading to fraud and abuse within the system.