Which concept refers to the legal principle that an insured must have an insurable interest in the subject of insurance?

The concept that refers to the legal principle that an insured must have an insurable interest in the subject of insurance is insurable interest. This principle requires that the insured has a stake in the subject matter of the insurance policy, meaning they would suffer a financial loss if the insured event occurs. Insurable interest is a foundational element in insurance contracts, ensuring that insurance serves its purpose of protection against losses rather than providing a speculative or gambling advantage.

For example, when purchasing a policy for a home, the homeowner has an insurable interest because their financial investment in the property would be at risk if it were damaged or destroyed. This requirement also helps prevent moral hazard, where someone might take unnecessary risks if they stand to benefit from an insurance payout without the genuine need or stake in the property or person insured.

The other concepts relate to different aspects of insurance but do not specifically define the necessity of having a stake in the subject of the insurance policy. Risk assumption pertains to the acceptance of risk, indemnification discusses compensating the insured for losses, and subrogation refers to the insurer's right to pursue third parties responsible for the loss after compensating the insured.