What does insurable interest require from the policyholder?

Insurable interest is a fundamental principle in insurance that requires the policyholder to have a legitimate interest in the continued life of the insured person. This means that the policyholder must stand to suffer a financial loss or have a personal loss if the insured person were to pass away. This principle ensures that individuals cannot take out life insurance on someone without a valid reason, thereby preventing moral hazard and potential fraudulent claims.

In this context, having a legitimate interest means that there is a meaningful connection between the policyholder and the insured. For instance, family relationships, such as that between a parent and child, or certain business relationships, such as a partnership where one partner’s health directly impacts the other’s financial condition, clearly demonstrate insurable interest.

The other options do not capture the essence of insurable interest. Having a financial stake in the insurance company does not relate to the necessity of a personal or financial relationship with the insured. A contractual obligation to pay premiums speaks more to the policyholder's responsibilities rather than their connection to the insured. Similarly, a mutual agreement with a beneficiary does not encompass the requirement of having an interest in the insured's life, which is at the core of the insurable interest concept.