Under California Insurance Code Section 10110, which party must have an insurable interest in the life of the insured for a life insurance policy to be valid?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 10110 requires that a person taking out a life insurance policy have an insurable interest in the life insured. The insurable interest must exist in the policyowner/applicant — the party who purchases and holds the contract — at the time the policy is issued, to ensure the arrangement is genuine protection rather than a wagering contract on someone's life. Close family relationships, economic dependence, and certain legal obligations (such as a creditor-debtor relationship) create insurable interest. The beneficiary's identity is not the source of the requirement; the applicant must possess the interest.
Why the other options are wrong
- B) The beneficiary does not need an insurable interest in the insured. The applicant’s insurable interest is the statutory requirement, and beneficiaries may be entirely unrelated to the insured.
- C) The insurer is a party to the contract, but the insurable interest requirement applies to the person procuring the insurance. The issuing company does not need to hold an insurable interest in the insured.
- D) Being a family member does not automatically establish the requirement in every case. The applicant must actually possess an insurable interest in the insured for the policy to be valid under Section 10110.
Memory hook
Insurable interest sits with the buyer, not the beneficiary. No interest, no contract — no wagering on lives.