When does insurable interest come into play in a life insurance policy?

Insurable interest must be established at the time the policy is created, which is typically when the application for the life insurance policy is submitted. In the context of life insurance, insurable interest is the legal and financial stake that the policyholder has in the life of the insured. This means that the policyholder should have a legitimate interest in the continued life of the insured; otherwise, the contract could be considered a wager and void under law.

The importance of insurable interest is emphasized particularly when the applicant for the policy is not the insured individual. In this situation, it becomes crucial that the applicant can prove a valid insurable interest in the life of the insured at the time the policy is applied for. If the applicant has no insurable interest, the policy may be declared void, as it exists to provide financial protection against the risk of the insured’s death.

This concept ensures that life insurance serves its intended purpose, which is to provide financial security for those who have a meaningful relationship or dependency on the insured. In contrast, the other options do not accurately represent the point at which insurable interest must be verified or do not pertain to the overall principles behind insurable interest in a life insurance context.