What is an example of an insurable interest?

An insurable interest refers to a financial stake in the property that would create a direct loss if that property were damaged or destroyed. The correct answer illustrates a situation where an individual or entity has a significant financial claim or liability regarding the property.

In the context of a loan on a property, the lender has an insurable interest because they have provided funds to the borrower in exchange for a mortgage. If the property were to be damaged or destroyed, the lender would suffer a financial loss since the value of the collateral (the property) is at risk. This financial interest is what qualifies as an insurable interest.

In contrast, options like owning a car or renting a property, while they may suggest a financial relationship, do not inherently imply a direct insurable interest in the context of a title insurance discussion. Owning a car relates to auto insurance rather than title insurance, and renting a property doesn't give the renter an insurable interest in the property itself—only the right to use it for the duration of the lease. Friends of the property owner do not have a financial stake in the property and therefore lack an insurable interest as well. Thus, having a loan on a property is the best example of an insurable interest.