Final answer:
Insurable interest must exist at the time of application when a policy is taken out. It is required for insurance policies to ensure that the person purchasing the policy has a legitimate interest in the insured life or property.
Step-by-step explanation:
In the context of insurance policies, insurable interest must exist at the time of policy inception, which is typically at the time of application. Insurable interest is a requirement that ensures the person purchasing the insurance policy has a legitimate interest in the preservation of the life or property insured, meaning they would suffer financial loss if the insured event occurs.
Life insurance policies, for instance, require that the policyholder has an insurable interest in the life of the insured at the time the policy is taken out, which would be at the time of application.
This concept applies to various forms of insurance coverage, such as health insurance, which pays when medical expenses are incurred; car insurance, which pays out when a car is damaged, stolen, or causes damage to others; and homeowner's or renter's insurance, which provides coverage when the dwelling is damaged or burglarized.
Understanding insurable interest is critical because it prevents financial speculation and ensures that insurance serves its purpose of risk management and protection against genuine losses.