Explain the concept of "insurable interest."

The concept of "insurable interest" is rooted in the principle that an individual or entity must have a legitimate financial stake in the life or property that is insured. This requirement ensures that the policyholder stands to suffer a financial loss if the insured event occurs, thus providing a valid reason for purchasing insurance.

In the context of life insurance, the insured must have a close relationship with the individual whose life is covered, such as family or business ties, to prevent moral hazard — the temptation to cause harm to benefit from the insurance payout. For example, a person would have an insurable interest in their spouse, child, or business partner, as their loss would have a financial impact on the policyholder.

Understanding insurable interest is critical in the design and enforcement of insurance contracts, as it upholds the integrity of the insurance system by preventing insurance from being used as a form of gambling or unethical profit-making.

The other options provided do not accurately reflect the definition of insurable interest; they relate instead to various aspects of insurance regulation, such as requirements for evidence in claims or coverage limitations based on age, which are separate issues in the insurance context.