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

For a life insurance contract to be valid, insurable interest must exist at the inception of the contract. This means that when the policyholder takes out the policy, they must have a legitimate interest in the life of the insured—essentially, a reason to be financially affected by the insured's death, such as a family relationship or a significant economic connection. This requirement is designed to prevent moral hazard, ensuring that insurance is used as a risk management tool rather than a gamble.

Once the contract is established and insurable interest is proven at the beginning, it does not need to be maintained throughout the policy's life. Therefore, a situation where the interest exists only at the inception reflects a clear understanding of risk management principles in insurance. When a life insurance contract is created, the insurer must be assured that it is based on a genuine interest, making the initial moment crucial for validity.