Alabama Property and Casualty Practice Exam

For a claim to be paid under a property and casualty contract, insurable interest must exist at what time?

1. At the time of the application

2. On the policy date

3. At the time of the loss

4. At the time of claim settlement

The correct answer is: At the time of the loss

For a claim to be paid under a property and casualty contract, insurable interest must exist at the time of the loss. This means that the insured must have a legitimate stake in the property or risk being covered at the moment the loss occurs. Insurable interest protects both the insurer and the insured; it ensures that the insured stands to suffer a financial loss if the property is damaged or destroyed, which discourages moral hazard and fraud. Having insurable interest at the time of loss reinforces the fundamental principle of insurance, which is to indemnify the insured for a financial setback rather than provide a windfall profit. The concept of insurable interest is crucial because, without it, the contract would be deemed void from the outset, meaning the insurer would not be liable for any claims. While insurable interest must be established at some point in the insurance process, the critical moment for a claim is when the loss occurs, ensuring that the insured has a valid claim based on their financial relationship to the property or risk involved.