When must insurable interest exist for a life insurance contract to be considered valid?

For a life insurance contract to be deemed valid, insurable interest must exist at the inception of the contract. Insurable interest refers to the financial or emotional interest a policyholder has in the continued life of the insured person. This requirement is crucial because it prevents individuals from taking out policies on strangers or those with whom they have no significant relationship, thereby avoiding moral hazards and potential abuse of the insurance system.

If insurable interest is not present at the beginning of the contract, the policy could be considered a wager on someone’s life, which insurance is fundamentally not designed to be. Therefore, confirming insurable interest at the outset ensures that the policyholder has a legitimate stake in the insured's well-being, promoting ethical practices within the life insurance industry.

In contrast, recognizing insurable interest only at the time of claim, renewal of the policy, or after the death of the insured does not satisfy the legal and ethical foundations upon which life insurance operates. Establishing this interest at inception reinforces the primary purpose of insurance as a means of risk management and financial protection.