State RegulationsNY specificDifficulty 2/5
Two business partners in Manhattan apply for life insurance on each other to fund a buy-sell agreement. Under N.Y. Ins. Law §3205, their insurable interest in each other's lives rests on:
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under N.Y. Ins. Law §3205(a)(1), persons who are not close relatives must have a lawful and substantial economic interest in the continued life, health, and bodily safety of the person insured — an interest distinct from an interest arising only upon the other person's death. Business partners who would suffer financially from each other's death have that continuing economic stake, which supports the buy-sell coverage.
Why the other options are wrong
- A) Love and affection is the standard for close blood or marriage relatives, not business associates.
- B) A mere expectation of benefit at death — like a creditor's interest — is not enough; the interest must be in the continued life.
- C) Superintendent approval of the agreement is not how insurable interest is established.
Memory hook
Insuring a partner: show money in the life, not just at the death.