Other Than Life (OTL) Practice Exam

Under which circumstance is there no insurable interest?

1. A mortgage company has a financial interest in a property

2. A person rents property

3. A person borrows property

4. A person expects to inherit property on the death of a relative

The correct answer is: A person expects to inherit property on the death of a relative

Insurable interest is a fundamental principle in insurance that requires the policyholder to have a legitimate interest in the property or life of the insured, meaning they would suffer a financial loss if the insured party were to experience a loss. When it comes to the scenario where a person expects to inherit property upon the death of a relative, there is no current financial interest or ownership in that property at the time the insurance policy is taken out. The expectation of inheritance does not create a direct financial stake in the property until ownership is transferred, which occurs only upon the relative's death. Therefore, one cannot insure an asset that they do not have legal rights to or a financial stake in prior to the event that grants them ownership. In contrast, when a mortgage company has an interest in a property, or when a person rents or borrows property, each of these situations involves a direct financial interest in the asset. The mortgage company would lose its investment if the property were to be destroyed, a renter has a stake in the property they are using, and a borrower has a tangible interest in the item they are using or accessing. Thus, those scenarios establish the necessary insurable interest that is not present in the situation related to an expected inheritance.