State RegulationsCA specific✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Under California Insurance Code Section 10110, a creditor generally has an insurable interest in the life and health of a debtor because:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 10110(c) gives a person an insurable interest in anyone under a legal obligation to the person for the payment of money, or respecting property or services, where death or illness might delay or prevent performance. A debtor owes money to the creditor, so the creditor faces a financial loss if the debtor dies or becomes ill. This financial dependence is the statutory basis of the creditor's insurable interest and permits creditor life and disability coverage within the policy limits.
Why the other options are wrong
- B) Custody of property does not create an insurable interest in another's life; the statutory basis is the legal obligation to pay.
- C) Blood relationship alone does not establish insurable interest under Section 10110; the statute requires financial dependency, support, or legal obligation.
- D) Co-signing a mortgage may create a separate obligation, but the creditor-debtor insurable interest under Section 10110(c) rests on the legal obligation of the debtor to the creditor.
Memory hook
Money owed = interest owned. The debtor's death threatens the creditor's pocketbook.