When must insurable interest exist?

Insurable interest must exist at the time of application because it is a fundamental principle in insurance that ensures the policyholder has a legitimate stake in the life or property being insured. This requirement helps prevent insurance fraud and speculative behavior, as the individual or entity must stand to suffer a loss if the insured event occurs.

If insurable interest is not established at the initiation of the policy, the insurer may have grounds to deny coverage or rescind the policy. This principle supports the contractual nature of insurance, where the insured must have a genuine interest in the preservation of the insured risk. It ensures that insurance serves its intended purpose of protection against risk rather than as a gambling mechanism.

While insurable interest is significant before renewal, at the time of payment, or after the policy is issued, it is essential that it is present at application to maintain the validity of the insurance contract from the outset.