What is the principle of 'insurable interest' in life insurance, and when must it exist?

Insurable interest means the policyowner must stand to suffer a genuine loss — financial or emotional — if the insured dies, which prevents life insurance from being used as a wager on a stranger's life. In life insurance, insurable interest must exist at the time the policy is applied for and issued (inception), but, unlike in property insurance, it does not need to exist at the time of the claim. People are generally considered to have insurable interest in their own lives, and in the lives of close family members or business partners with a financial relationship. This principle is a foundational concept tested on life insurance exams.