When must insurable interest exist?

Insurable interest is a fundamental concept in insurance, establishing the relationship between a person and the item or entity being insured. For an insurance contract to be valid, insurable interest must be present at the time of loss. This means that the policyholder must stand to suffer a financial loss or detriment if the insured property is damaged or destroyed.

By requiring insurable interest at the time of loss, the insurance contract ensures that the policyholder has a legitimate stake in the insured item, which helps to prevent moral hazard—where individuals might be incentivized to cause harm to gain from an insurance payout. If insurable interest only needed to be established at the time of purchase or signing, it could lead to abuse of the insurance system, allowing individuals to profit from events they have no legitimate connection to at the time of the claim.

This requirement underscores the principle that insurance is intended to provide financial protection against genuine losses, rather than serving as an investment or speculative tool. Therefore, insurable interest being necessary at the time of loss ensures a valid claim and reinforces the integrity of the insurance process.