When must insurable interest exist in a life insurance contract?

In a life insurance contract, insurable interest must exist at the time of application. This principle is fundamental to the contract as it ensures that the policyholder has a legitimate reason to insure the life of the insured party. Insurable interest reflects a financial stake or relationship that would be negatively impacted by the loss of life covered by the policy, which is key to preventing insurance fraud and moral hazard.

If a person purchases a life insurance policy on someone else's life, they must have a personal interest in that individual's continued life, such as a familial, business, or financial relationship. This requirement exists to uphold the integrity of insurance practices, ensuring that individuals cannot take out policies on strangers with no meaningful connection, which could encourage unethical behavior or abuse of the insurance system.

The other phases of the insurance contract process, such as the time of claim or policy renewal, do not require the same level of insurable interest. While having insurable interest during the life of the insured is necessary in a broader sense, it is specifically at the time of application where the requirement is legally mandated to initiate the contract.