Q.Explain under which principle of Insurance, a creditor takes Insurance on his debtors.

The principle is Insurable Interest: a creditor stands to lose financially if the debtor dies, so he has an insurable interest in the debtor's life and may insure it.

A valid insurance contract requires that the person taking the policy has an insurable interest in the subject matter — that is, he must benefit from its safety/existence and suffer a loss from its damage or death. This is one of the fundamental principles of insurance in the TN HSC Class-11 Commerce syllabus.

Applying it to the given case:

• A creditor has lent money to a debtor. If the debtor dies before repaying, the creditor may not get his money back and so suffers a financial loss.
• Because the creditor gains from the debtor staying alive to repay, and loses from the debtor's death, he has a genuine financial (insurable) interest in the debtor's life. …