Two business partners in Denver each purchase a life insurance policy on the other partner's life so the business can continue after one partner's death. Under C.R.S. § 10-7-701, does a valid insurable interest exist?

Why B is correct

C.R.S. § 10-7-701 governs insurable interest in Colorado, and a person has an insurable interest when a lawful and substantial economic interest in the continuing life of the insured exists. Business partners each benefit financially from the other's continued life, so each has an insurable interest in the other and the cross-purchases satisfy the requirement that the interest exist when the policy is issued.

Why the other options are wrong

• A) Insurable interest does not require blood or marriage; a substantial financial interest, such as a business partnership, is sufficient.
• C) A person may insure his or her own life, but insurable interest also extends to others in whom the applicant holds a substantial financial interest, such as partners.
• D) The source of premium payments does not create or defeat insurable interest; the question is whether a substantial financial interest exists at issuance.

Memory hook

Partners profit together — so each can insure the other.