When must insurable interest exist in a life insurance policy?

Insurable interest must exist at the time of application for a life insurance policy because this principle ensures that the policyholder has a legitimate interest in the continued life of the insured. This requirement protects the integrity of the insurance contract; if insurable interest did not exist, it could potentially lead to moral hazards, where the policyholder might have a financial incentive for the insured to die.

In practical terms, having insurable interest means that the applicant must have a relationship with the insured such that they would suffer a financial loss or hardship in the event of the insured's death. This concept is fundamental to the life insurance industry, as it reinforces the purpose of life insurance as a tool for risk management and financial protection rather than a speculative investment.

Other choices, such as having insurable interest at the time of renewal or during interest payment, do not align with the foundational principles of life insurance. The focus remains on the initial signing of the application, where the necessity for the applicant to have a vested interest is paramount for the policy to be valid and legally enforceable.