When must an insurable interest exist in life insurance?

In life insurance, insurable interest must exist only at the time of application (inception of the policy).

Key Rule Details

• At Inception Only: The person buying the policy must have a valid financial or emotional stake in the insured person's life when they apply.
• Changes Later Don't Matter: If the relationship changes or ends after the policy is active (such as through a divorce), the policy remains completely valid. The payout will still go to the designated beneficiary.
• Contrast with Property Insurance: Unlike property and casualty insurance—where an insurable interest must exist both at purchase and at the time of the loss—life insurance only tests this requirement at the very beginning.
• Purpose: This rule prevents life insurance from acting as a random gambling or wagering contract.