When is insurable interest for life insurance necessary?

Insurable interest for life insurance is necessary at the time of application. This requirement ensures that the applicant has a legitimate interest in the continued life of the insured. Such an interest typically exists in situations where there is a relationship, such as between family members or business partners, where the loss of the insured would result in financial hardship or emotional distress for the applicant.

Having insurable interest at the time of application is a fundamental principle designed to prevent moral hazard, where an individual might be encouraged to harm the insured if there is no genuine interest in their well-being. It establishes a valid reason for the applicant to purchase the policy and claims that the insured person's life has significant value to the applicant.

While insurable interest must be established, it is not required at the time of loss, policy renewal, or claim submission. Those situations pertain to different aspects of the insurance contract, but the critical moment for determining insurable interest rests at the application phase.