When is it necessary to demonstrate insurable interest in a life insurance contract?

Demonstrating insurable interest in a life insurance contract is essential only at the time the contract is made. Insurable interest means that the policyholder must have a legitimate interest in the continued life of the insured individual. This requirement is designed to prevent insurance from being used as a speculative investment or financial gamble, ensuring that the policyholder stands to suffer a financial loss if the insured individual dies.

Once the contract is established and the insurer has accepted the application with this demonstrated insurable interest, it remains in effect for the duration of the policy. There is no need to prove insurable interest at the time of claim or at any point during ownership after the contract is created, which distinguishes life insurance from other types of insurance like property insurance, where ongoing assessment of interest might be necessary. This fundamental principle ensures the integrity of life insurance as a risk management tool rather than a speculative venture.