A woman takes out a life insurance policy on her husband. For the contract to be valid, when must her insurable interest in his life exist?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under California Insurance Code Section 10110 and the general law of life insurance, an insurable interest must exist when the policy is issued, not when the insured dies. A spouse automatically has an insurable interest in the life of the other spouse. Because life insurance is not an indemnity contract, the interest does not have to continue beyond issuance; if the interest existed at inception, the policy generally remains valid even if the relationship later changes. This timing rule distinguishes life insurance from property insurance, where the interest must exist at the time of loss.
Why the other options are wrong
- B) The interest need not exist at death; life insurance requires insurable interest only at the inception of the contract, so a claim remains payable even if the interest has since ended.
- C) Filing a claim is far too late; by that point the policy would already have been unenforceable if no interest had existed at issue. The validity of the contract is determined at issue, before any claim could be presented.
- D) Designating a beneficiary is not the controlling moment; the insurable interest requirement is tested when the coverage is issued. Beneficiary designation is a separate act that occurs after the policy exists and does not govern the interest requirement.
Memory hook
Insurable interest: present at the start, never needed at the end. Inception is the moment.