When must an insurable interest exist according to insurance principles?

An insurable interest must exist at the proposal or application stage of the policy. This principle is fundamental to insurance contracts as it ensures that the policyholder has a legitimate interest in the subject matter of the insurance. An insurable interest means that the policyholder would suffer a financial loss or hardship if the insured event were to occur, which aligns the interests of both the insurer and the insured by preventing potential moral hazard where individuals might deliberately cause a loss to gain from their insurance policy.

Establishing insurable interest at the application stage is crucial because it helps to prevent insurance fraud and ensures that policies are used for their intended purpose—providing financial protection against genuine risks. If insurable interest were only required at the claim stage, it could lead to situations where individuals sought to claim benefits without any real stake in the loss, undermining the insurance mechanism's integrity.

While insurable interest must exist at the time of application, it does not need to be continuously maintained during the policy’s duration, nor is it tied solely to the payment of premiums. Thus, establishing insurable interest at the beginning is essential for validating the insurance contract.