A dental practice buys disability income insurance on its only hygienist, whose absence would cost the practice revenue. The practice has an insurable interest in the hygienist because:

Why A is correct

Insurable interest exists when the policyowner would suffer financial harm if the insured suffers a covered loss. Under California law, a person has an insurable interest in persons under a legal obligation to them for the payment of money or respecting services — which covers the key-employee relationship: the practice depends on the hygienist's services and loses revenue if she becomes disabled. The policyowner (the practice) is also the beneficiary of the policy; the employee is merely the insured.

Why the other options are wrong

• B) Every person has an insurable interest in their own life and health; the hygienist certainly has an interest in herself.
• C) The amount of coverage must be reasonably related to the financial loss; employers cannot insure an employee for an arbitrary sum.
• D) The practice owns the policy, but ownership alone is not the source of insurable interest — the financial loss is.

Memory hook

Insurable interest follows the money: if disability drains your revenue, you can insure the key employee.