Under California law, who must have an insurable interest in the insured's life at the time a life insurance policy is issued?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The person who owns and applies for the policy must have an insurable interest in the insured's life at inception under CIC Section 10110, which defines insurable interest through relationships such as self, dependents for support, and persons under a legal obligation to pay money. The beneficiary does not need an insurable interest; anyone may be named to receive proceeds. The insurer is the risk-bearer, not a party requiring insurable interest, and legal counsel is irrelevant to the statutory requirement. This structure prevents wagering policies while preserving flexibility in naming the recipient of the death benefit.
Why the other options are wrong
- B) The beneficiary is not subject to an insurable interest requirement. Anyone may be named to receive the proceeds, so long as the policyowner has a valid insurable interest in the insured's life at the time the policy is issued.
- C) The insurer is the party that assumes the risk in exchange for premiums; it does not need an insurable interest in the insured's life. The statutory requirement is imposed on the person who owns and procures the coverage.
- D) The applicant's attorney plays no role in the statutory insurable interest test. The requirement turns on the relationship between the policyowner and the insured, not on who provides legal advice.
Memory hook
The person who signs as owner must have the insurable interest. The beneficiary can be anyone.