A business owner in Charlotte purchases a life insurance policy on a key employee. Under North Carolina common law, when must the owner's insurable interest in the employee's life exist?

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.