Under California Insurance Code Section 10110, when must the policyowner have an insurable interest in the insured's life?

Why A is correct

For life insurance, California law (CIC §10110) requires that an insurable interest exist at the time the policy is issued — the point of contract formation. Unlike property insurance, where insurable interest must exist at the time of loss, life insurance does not require a continuing interest at death; the policyowner may even maintain the policy after the relationship giving rise to the interest ends. The purpose is to prevent a wager on someone's life: at inception the owner must stand to suffer genuine financial loss from the insured's death.

Why the other options are wrong

• B) For life insurance the insurable interest is tested at policy issue, not at death. California law does not require that the interest continue to exist at the time of the insured's death.
• C) CIC §10110 requires the interest only at the point of contract formation. There is no additional requirement that the interest be re-verified at the insured's death or at claim time.
• D) The interest is fixed when the contract forms at issuance, not deferred until a claim is presented. Waiting until a claim would defeat the statute's purpose of preventing wagering on a life.

Memory hook

Life: interest at birth of the policy. Property: interest at death of the claim.

Why A is correct

California requires that the policyowner have an insurable interest in the insured's life at the time the policy is issued. Section 10110 recognizes insurable interest in oneself, in anyone on whom one depends wholly or in part for education or support, in anyone under a legal obligation to pay the policyowner money, and in anyone upon whose life an estate vested in the owner depends. Once the policy is in force, the interest need not continue: if the relationship later ends, such as after a divorce or the dissolution of a business, the policy remains valid and payable.

Why the other options are wrong

• B) Insurable interest is tested at issue only, not continuously; a policy does not lapse merely because the relationship later ends.
• C) The claim stage is too late; coverage could not legally be issued if no interest existed at inception.
• D) Insurable interest applies to all life insurance, not only business policies; an individual always has an insurable interest in himself or herself.

Memory hook

Insurable interest is a photo taken at issuance; it need not exist on claim day.