State RegulationsAZ specificDifficulty 2/5
Two co-owners of a Mesa company want to insure each other's lives to fund a buy-sell agreement. Under A.R.S. 20-1104, do they have an insurable interest in each other's lives?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A.R.S. 20-1104 expressly recognizes that parties to a buy-sell or option contract have an insurable interest in the lives involved, because each holds a lawful and substantial economic interest in the other's continued life. The Mesa co-owners can therefore cross-insure to fund their agreement.
Why the other options are wrong
- B) Non-relatives can qualify through a lawful and substantial economic interest; blood or law ties are only one route.
- C) The charitable-organization provision in A.R.S. 20-1104 is a separate rule and has no bearing on a buy-sell arrangement.
- D) Business relationships such as buy-sell and option contracts expressly create insurable interest under Arizona law.
Memory hook
Buy-sell partners can insure each other - economics count.