A New York business owner applies for life insurance on the life of a key employee with whom the owner has no family relationship. Under N.Y. Ins. Law §3205, the owner has an insurable interest if:

Why D is correct

Under N.Y. Ins. Law §3205, close blood and marriage relatives are presumed to have an insurable interest arising from love and affection, while everyone else must have a lawful and substantial economic interest in the continued life, health, and bodily safety of the person insured - an interest distinct from one that arises only upon death. A business owner's stake in a key employee's continued service qualifies. Without insurable interest when the policy is applied for, the contract would be an invalid wager on human life.

Why the other options are wrong

• A) Insurable interest is not automatic as to everyone; a person who is not a close relative of the insured must demonstrate a qualifying interest.
• B) An interest that arises only upon the insured's death is expressly insufficient under §3205; the interest must be in the insured's continued life.
• C) The employee's written consent does not substitute for the applicant's insurable interest; consent relates to underwriting, not to the validity of the interest.

Memory hook

Family = love and affection; everyone else = economic stake in the continued life.