In California, for a life insurance policy to be valid, the policyowner's insurable interest in the insured must exist:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under CIC §10110 and standard life insurance law, insurable interest must exist at the inception of the contract, when the application is made and the policy is issued. If the interest ceases later, for example after a divorce or the dissolution of a business partnership, the policy remains valid because the requirement was tested at issue. Requiring insurable interest at inception prevents wagering on human life and speculative contracts. This is why a policyowner does not need to prove a continuing relationship with the insured at the time of the insured's death; the validity of the contract was fixed when it was formed.
Why the other options are wrong
- B) Life insurance does not require a continuing interest; the test is applied once at issue to prevent wagering, and coverage continues even if the relationship later ends. A divorce or partnership dissolution after issue does not invalidate the policy.
- C) Measuring interest only at death would defeat the anti-wagering purpose of the law, since the risk of death would have already materialized. The validity of the contract must be judged when the policy is formed.
- D) Claim submission is irrelevant to the insurable-interest requirement, which is a contract-formation test rather than a claims-time test. The interest exists or not at issue, and nothing about the claim process can cure its absence.
Memory hook
Insurable interest is a door check at issue, not a lifetime surveillance—once valid, forever valid.