Registered Insurance Brokers of Ontario (RIBO) Practice Exam

What must exist for an insured to recover a loss under a fire insurance policy?

1. Deductible amount

2. Coverage limits

3. Insurable interest

4. Market value

The correct answer is: Insurable interest

For an insured to recover a loss under a fire insurance policy, insurable interest must exist. Insurable interest means that the insured has a legitimate interest in the property being insured, which implies that they would suffer a financial loss if a covered event, such as a fire, were to occur. This principle ensures that only those who have a stake in the property can make claims under the policy, helping to prevent insurance fraud. Having insurable interest at the time of the policy's inception and at the time of the loss is crucial. Without this interest, the insured cannot legally claim for losses, as they do not have a financial connection to the property. While deductible amounts, coverage limits, and market value can influence an insured's recovery under a policy, they do not replace the fundamental requirement of insurable interest. Deductibles determine the amount that the insured must pay out of pocket before coverage kicks in, coverage limits cap the maximum amount an insurer will pay for a claim, and market value can impact how much is paid in the event of a claim. However, none of these factors can substitute for the necessity of having insurable interest in the property.