How does "insurable interest" differ from "beneficiary"?

Insurable interest refers to the requirement that a person or entity must have a significant stake in the property or life covered by an insurance policy. This means that if the insured property suffers a loss, the insured would face a financial hardship, thus creating a valid reason to seek coverage. Insurable interest is fundamental to insurance contracts because it helps prevent moral hazard—where someone might deliberately cause a loss due to having no financial stake in the outcome.

On the other hand, a beneficiary is someone designated to receive benefits from an insurance policy in case of a covered event, such as death in the case of life insurance. While a beneficiary can benefit from the policy, they do not necessarily need to have insurable interest in the insured property or person. This distinction highlights that while insurable interest centers on having a direct financial stake in what is being insured, the concept of a beneficiary involves the distribution of the insurance payout to another party, who may or may not have an insurable interest.

Therefore, stating that insurable interest involves a stake in the property accurately captures the essence of why the answer is correct.