Under California Insurance Code Section 10110, when must an insurable interest in the life of another person exist for a valid life insurance contract?

Why A is correct

Section 10110 of the California Insurance Code provides that every person has an insurable interest in the life and health of himself, anyone on whom he depends for education or support, anyone under a legal obligation to him for money, property, or services, and anyone on whose life an estate or interest vested in him depends. For life insurance, the insurable interest must exist at the inception of the policy; it need not exist at death. This rule prevents the policy from being a mere wagering contract at issuance.

Why the other options are wrong

• B) Requiring the interest only at death would permit wagering contracts at issue, which the law prohibits; the relevant moment is issuance.
• C) Life insurance does not require the insurable interest to continue; the interest may later end and the policy can remain valid.
• D) The beneficiary does not need to have an insurable interest in the insured; naming a beneficiary is unrelated to whether the interest exists.

Memory hook

Insurable interest at issue, not at death. Check the date on the application, not the certificate on the casket.

Why A is correct

California law (CIC Section 10110) requires that an insurable interest in the insured's life exist at the inception of the contract — when the policy is applied for and issued. The interest does not need to continue through death; a policyowner may later lose the insurable interest, for example when a key employee leaves, and the death benefit is still payable. This timing rule distinguishes life insurance from property insurance, where insurable interest must exist both at inception and at the time of loss.

Why the other options are wrong

• B) Life insurable interest need not be continuous; once it validly exists at issue, the contract stands.
• C) Requiring it only at death would permit strangers to wager on another's life by buying a policy, which the law forbids.
• D) Family relationship is one way to show insurable interest, but business and creditor relationships also qualify; the interest is not limited to family.

Memory hook

Life = interest at the START. Property = interest at the START and at the LOSS. Check the checkpoint.