What element must be present in order for insurable interest to exist?

For insurable interest to exist, there must be a financial stake or potential financial loss that the policyholder would incur if the insured event occurs. This principle ensures that the person purchasing the insurance has a legitimate reason for insuring the subject. If an event were to happen, resulting in a loss, the policyholder would be directly affected financially.

The necessity of having a potential financial loss is what distinguishes insurance from gambling; insurance is designed to protect against losses that one is directly interested in. For example, if you take out a life insurance policy on a relative, you have an insurable interest because their death would likely cause you financial hardship, whether due to loss of income or expenses incurred.

In contrast, elements such as a complete contract agreement are related to the validity and enforceability of the insurance contract but do not specifically address the concept of insurable interest. Similarly, while remote financial involvement, such as having incidental financial connections, does not cultivate a strong enough link to establish insurable interest. Lastly, qualifying health requirements pertain to underwriting practices rather than the fundamental principle of insurable interest. Hence, the element of financial loss due to an insured event is crucial for the existence of insurable interest.