When must insurable interest arise under a life policy?

Insurable interest in a life policy must arise at inception, meaning that the individual purchasing the policy must have a legitimate interest in the continued life of the person being insured at the time the contract is created. This requirement ensures that the policyholder would suffer a financial loss or hardship upon the death of the insured, which is a fundamental principle of insurance designed to prevent moral hazard.

When insurable interest is established at the inception of the policy, it provides a basis for the policy and justifies the insurer's risk in providing coverage. If insurable interest were to arise at a later time, such as at the moment of a claim or at maturity, it could lead to situations where policies are acquired with the sole intent of profiting from the insured’s death, which undermines the integrity of the insurance contract and the purpose of insurable interest. Therefore, the requirement that insurable interest must exist at inception aligns with ethical considerations in insurance and the protection of the insurance market.