When must insurable interest exist in the context of life insurance?

Insurable interest must exist at the time of application when purchasing a life insurance policy. This requirement ensures that the policyholder has a legitimate interest in the continued life of the insured, which helps prevent insurance fraud and gambling on someone's life. By necessitating insurable interest at the application stage, the insurance industry protects itself from policies that could lead to moral hazards, where someone might have a financial incentive to see the insured pass away.

In life insurance, insurable interest typically arises from relationships such as family connections, financial dependents, or business partnerships. If an individual applies for a life insurance policy on someone else's life, they must demonstrate that they would suffer a financial loss if that person were to die. This requirement safeguards the integrity of life insurance as a financial product that provides security rather than serves as a wager on life outcomes.

Having insurable interest be a factor at other points, such as at policy expiration or claim submission, does not fulfill the ethical and legal standards set in the insurance industry.