State RegulationsPA specificDifficulty 2/5
A woman bought a life policy on her business partner while both held financial stakes in their firm. Years later she sold her share of the business but remains the policyowner. Under 40 P.S. § 512, the insurable interest requirement is measured:
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
For life insurance, 40 P.S. § 512 requires insurable interest at the inception of the policy — when the insurance is obtained. This policyowner held a genuine financial stake in her partner's life when the coverage was issued, so the requirement was met and the policy stands even after her business interest later ended. Life insurance is unlike property coverage, where the interest is tested at the time of loss.
Why the other options are wrong
- A) Life insurable interest is fixed at issue under 40 P.S. § 512; a later change in the business relationship does not void validly issued coverage.
- B) The requirement is not deferred to the death claim; it must exist when the policy is procured.
- D) Departmental audits review compliance but do not supply or retest the insurable interest that the statute requires at inception.
Memory hook
Life insurance checks the interest at birth of the policy, not at death.