Which description fits the concept of insurable interest in life insurance?

The concept of insurable interest in life insurance revolves around the idea that the policyowner must have a legitimate financial stake or interest in the life of the insured. This requirement ensures that the policyholder has a valid reason for purchasing the insurance, as it prevents individuals from taking out policies on the lives of those with whom they have no personal or financial connection.

In practical terms, insurable interest means that the policyholder would suffer a financial loss or hardship if the insured were to pass away. This principle serves to reduce moral hazard and discourages insurance fraud, as it aligns the interests of the policyowner with the life and well-being of the insured.

Other options do touch on aspects related to insurable interest, but they do not fully capture the essence of the requirement. The need for a beneficiary to benefit from the insured's life, for example, is indirectly related but does not directly address the primary focus of having a financial stake. Similarly, while lenders may require collateral for loans—which can relate to the broader topic of financial interests—the specific insight into life insurance focuses on the policyowner's stake in the insured's life. Lastly, the mention of minors and their inability to benefit from death proceeds doesn't relate to the core definition of insurable interest