Which statement regarding insurable interest in a life insurance contract is NOT true?

In the context of life insurance contracts, the concept of insurable interest refers to the requirement that the policyowner must have a legitimate interest in the continued life of the insured. This requirement serves to prevent insurance from being used as a gambling mechanism or to encourage harm.

The correct answer indicates that insurable interest cannot be based solely on sentimental attachments. Insurable interest must have a tangible connection that can be typically justified by financial interest or certain familial relationships, where the policyholder would suffer a financial loss if the insured were to pass away. Therefore, while sentimental attachments may exist, they do not constitute a sufficient basis for insurable interest under insurance law.

The other statements establish fundamental truths about insurable interest. For instance, it must indeed exist at the time the policy is issued, ensuring that there is a documented reason for the insurance coverage. Furthermore, insurable interest is notably not a requirement for beneficiaries; they do not need to demonstrate any financial loss or vested interest in the insured's life, as they are simply the recipients of the policy proceeds upon the insured's death. Lastly, it can be based on financial interest, which is the most commonly recognized form of insurable interest, reflecting a legitimate stake in the insured's life and well-being.