A business owner purchases a life insurance policy on a business partner. Three years later, the partnership dissolves and the business relationship ends. Which statement is correct regarding the policy?

Why A is correct

Under California law (CIC §10110), insurable interest in a life insurance policy must exist at the time the policy is issued, but it need not continue for the policy to remain valid. Once issued, the policy remains in force, and the death benefit is payable even if the relationship giving rise to insurable interest later ends. This rule allows policies to remain stable rather than being voided by changing circumstances. The insurer does not refund premiums, and no beneficiary change is legally required merely because the business relationship ended.

Why the other options are wrong

• The policy is not void. California requires insurable interest only when the policy takes effect; the termination of the business relationship later does not cancel the contract. This answer describes a different situation from the one in the question and is therefore incorrect under the facts given here.
• No refund is owed. The policy has been in force, the premiums have purchased coverage, and the insurer continues to honor the contract despite the changed relationship between the parties.
• The policyowner retains the right to name a beneficiary, but there is no legal obligation to change it. The ownership rights are unaffected by the loss of the original insurable interest.

Memory hook

Insurable interest matters at issue; after that, the policy stands on its own.