What is meant by insurable interest?

Insurable interest refers to a financial stake that a policyholder has in the subject matter of the insurance policy. Specifically, it means that the individual or entity purchasing the insurance stands to suffer a financial loss if the insured event occurs. In other words, there must be a legitimate interest in the property or asset being insured, such that a loss would have a direct and tangible impact on the policyholder's financial situation.

This concept is crucial because it ensures that insurance is used as a mechanism for risk management, rather than as a gambling tool. If someone has insurable interest in a property or asset, it aligns the goals of both the insurer and the insured to safeguard against potential losses.

In this case, choosing "the expectation of monetary loss due to a covered event" accurately captures the essence of insurable interest, as it focuses on the potential financial repercussions that highlight the necessity and justification for purchasing an insurance policy.