In California, insurable interest for a health or disability policy must exist:

Why A is correct

Insurable interest must exist when the contract is formed. For life and disability policies under California law, the interest is tested at policy issue; if it exists at that moment, the policy is valid even if the relationship later changes. Unlike property insurance, where the interest must exist at the time of loss, life and health coverage looks to the moment the contract is made.

Why the other options are wrong

• B) The interest is not tested at claim time; it must already exist when the policy is issued.
• C) The interest need not continue throughout the benefit period; the contract's validity is fixed at issue.
• D) The insured's death is irrelevant for health or disability policies, which pay on disability or illness.

Memory hook

Check for insurable interest at the door, not at the payoff.

Why C is correct

Insurable interest must exist when the insurance contract is applied for. A person has an insurable interest in the health of another when the person would suffer financial loss from that other's death, disability, or illness. Requiring interest at inception prevents insurance from becoming a wager on the health or life of a stranger, and the rule applies to the applicant and the person covered at the outset of the policy.

Why the other options are wrong

• A) Interest must be present at inception; it cannot be created later merely by filing a claim.
• B) In health insurance the relevant moment is application, not death; death timing is irrelevant to insurable interest.
• D) Without insurable interest at inception, the contract would be an unenforceable wager.

Memory hook

Interest at the start, or the contract is just a bet.