Mr. Chen wishes to purchase a life insurance policy on his neighbor, Mr. Davis, whom he admires greatly but has no financial relationship with. Mr. Davis does not know about the plan and has not consented to it. Mr. Chen plans to name himself as owner and beneficiary. Under Texas insurance law, which of the following statements regarding insurable interest is TRUE?
Correct
The answer is A: Mr. Chen must have an insurable interest in Mr. Davis's life at the time of the policy's inception for the policy to be valid.
For a policy to be valid, the policyowner must have an insurable interest in the life of the insured when the policy is issued (inception). Insurable interest usually rests on a family, financial or legal relationship; admiration alone is not enough, and paying the premiums does not create one. Texas does let an adult consent in writing to a third party buying a policy on his life and naming any person as owner or beneficiary (Insurance Code §1103.056), and a person designated that way has an insurable interest (§1103.053). Mr. Davis has not consented, so Mr. Chen has no insurable interest and the policy would not be valid.
Why not ?
Show the answer
The answer is A: Mr. Chen must have an insurable interest in Mr. Davis's life at the time of the policy's inception for the policy to be valid.
For a policy to be valid, the policyowner must have an insurable interest in the life of the insured when the policy is issued (inception). Insurable interest usually rests on a family, financial or legal relationship; admiration alone is not enough, and paying the premiums does not create one. Texas does let an adult consent in writing to a third party buying a policy on his life and naming any person as owner or beneficiary (Insurance Code §1103.056), and a person designated that way has an insurable interest (§1103.053). Mr. Davis has not consented, so Mr. Chen has no insurable interest and the policy would not be valid.
