Under North Carolina common law, when must an insurable interest in the life of the insured exist for a life insurance policy to be valid?

Why D is correct

Under North Carolina common law, an insurable interest in a life insurance context must exist when the policy is issued, because the law requires a legitimate relationship between the policyowner and the insured at the moment coverage is created. It need not continue to the insured's death, so a beneficiary who loses the underlying relationship — for example a former business partner — may still collect on a validly issued policy. This reflects North Carolina common law, as applied through the policy-provisions framework of G.S. 58-58-22.

Why the other options are wrong

• A) Requiring the interest only at death would validate wagering policies taken out by strangers, which the inception rule prevents.
• B) The interest is required at inception only; demanding it again at death contradicts the common-law rule.
• C) Continuity through the policy period is not required once the legitimate interest existed at issuance.

Memory hook

Insurable interest at the start, not at the stop.

Why B is correct

North Carolina common law treats insurable interest as a requirement of the contract of insurance itself: the policyowner must hold an insurable interest in the insured's life when the policy is issued. Once the contract is validly formed, the interest need not continue, so a legitimate key-employee policy still pays its death benefit even if the business relationship has ended. This prevents wagering on strangers' lives while keeping genuine business coverage enforceable. This reflects North Carolina common law, as applied through the policy-provisions framework of G.S. 58-58-22.

Why the other options are wrong

• A) Requiring insurable interest at death instead of inception would permit wager policies taken out on strangers' lives, which North Carolina common law forbids.
• C) No North Carolina authority requires the interest to persist for the life of the contract; the common-law test is applied at inception only.
• D) The timing of insurable interest is a settled common-law rule, not a matter of insurer underwriting discretion; it cannot shift to the date of death.

Memory hook

Insurable interest is checked when the ink dries — at issue, not at death.

Why A is correct

Under North Carolina common law, an insurable interest in a life insurance policy must exist when the policy is issued, at inception; it need not exist at the insured's death. This reflects North Carolina common law, as applied through the policy-provisions framework of G.S. 58-58-22. Because the partners had an insurable interest in each other when the policies were issued, the later dissolution of the partnership does not defeat the death claim.

Why the other options are wrong

• B) Demanding the interest at death is the property-insurance timing rule; life insurance in North Carolina is judged at inception.
• C) A validly issued policy does not become void when the underlying relationship ends; the beneficiary keeps the full death benefit.
• D) No reacquisition is required; the inception requirement was satisfied when the partners bought the policies.

Memory hook

Insurable interest is judged at the door - inception, not death.

Why C is correct

Under North Carolina common law, an insurable interest in the life of the insured must exist at the inception of the policy; it need not exist at the time of the insured's death. This is why a beneficiary named at issue retains the death benefit even if circumstances change and the beneficiary no longer has an interest in the insured's life when death occurs. The timing rule prevents wagering contracts at issue without penalizing later changes. This reflects North Carolina common law, as applied through the policy-provisions framework of G.S. 58-58-22.

Why the other options are wrong

• A) Requiring insurable interest only at death reverses the North Carolina common law rule; the requirement attaches at inception.
• B) North Carolina common law requires insurable interest at inception but does NOT require it to continue until death, so the both-times answer overstates the rule.
• D) The claim stage is irrelevant; the common law test is fixed at policy inception, not at the time a claim arises.

Memory hook

Interest at inception, not at the grave.