When must insurable interest be present for a life insurance policy to be valid?

When must insurable interest be present for a life insurance policy to be valid?

• A. At the time of claim
• B. At the time of policy payout
• C. At the time of application
• D. At the time of renewal

Answer: (C)

Insurable interest must be present at the time of application for a life insurance policy to be valid. This concept ensures that the policyholder has a legitimate interest in the continued life and health of the insured individual. The insurable interest requirement protects against moral hazard, which occurs when someone might have an incentive to cause harm to the insured individual. To illustrate, if a person applies for a life insurance policy on someone else's life without a genuine interest — such as that of a spouse, family member, or business partner — it may inadvertently promote unethical behavior. Insurable interest guarantees that the policyholder stands to benefit from the insured's well-being, creating a lawful and ethical basis for the insurance contract. Presence of insurable interest at other times, such as when a claim is made or when the policy is renewed, does not establish the legal and ethical foundation necessary when the insurance contract is first initiated. Thus, having insurable interest at the time of application is crucial for the validity of the life insurance policy.

Insurable interest must be present at the time of application for a life insurance policy to be valid. This concept ensures that the policyholder has a legitimate interest in the continued life and health of the insured individual. The insurable interest requirement protects against moral hazard, which occurs when someone might have an incentive to cause harm to the insured individual.

To illustrate, if a person applies for a life insurance policy on someone else's life without a genuine interest — such as that of a spouse, family member, or business partner — it may inadvertently promote unethical behavior. Insurable interest guarantees that the policyholder stands to benefit from the insured's well-being, creating a lawful and ethical basis for the insurance contract.

Presence of insurable interest at other times, such as when a claim is made or when the policy is renewed, does not establish the legal and ethical foundation necessary when the insurance contract is first initiated. Thus, having insurable interest at the time of application is crucial for the validity of the life insurance policy.