Arizona Adjuster Practice Exam

Who has an insurable interest in a home owned by Frank?

1. Frank's neighbor

2. The mortgagee of Frank's home

3. Frank's friend

4. The local government

The correct answer is: The mortgagee of Frank's home

The correct response highlights that the mortgagee of Frank's home has an insurable interest because a mortgagee is the lender who holds a security interest in the property. When an individual takes out a mortgage loan to purchase a home, the property itself serves as collateral for the loan. This means that the mortgagee has a financial stake in the property; if the property were to suffer damage, the mortgagee would want to ensure that the loan is able to be repaid. Insurable interest is a fundamental concept in insurance, indicating that the insured must have a legitimate interest in the subject matter of the insurance. Since the mortgagee stands to lose financially if the property is damaged or destroyed, they possess an insurable interest. This relationship ensures that the mortgagee can collect on the insurance policy in the event of a claim to protect their investment. In contrast, while Frank's neighbor or friend may have some interest in Frank's well-being or the aesthetic of the neighborhood, they do not have a direct financial interest in the property itself. The local government might have regulations or property taxes related to the home, but again, this does not create an insurable interest in the same sense as the mortgagee's financial stake.