Texas Life & Health: Life Insurance Basics & Risk Concepts

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.

Source: Insurance Code §1103.056 · Insurance Code §1103.053

Correct

The answer is A: Yes, because the policyowner can change a revocable beneficiary at any time without the beneficiary's consent.

Unless a beneficiary designation is explicitly made irrevocable, the policyowner retains the right to change the beneficiary at any time without the beneficiary's consent. Marriage does not automatically make a beneficiary irrevocable, and Texas does not require spousal consent or a court order to change a revocable beneficiary.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is C: The coverage is disproportionate to her income and need, suggesting possible moral hazard.

Financial underwriting ensures that requested coverage is reasonable in relation to the applicant's income, net worth, and need. A $1 million policy on a person earning $35,000 with no dependents is wildly disproportionate, raising concerns about over-insurance and potential moral hazard. There is no such income cap in Texas, and underwriters routinely review financial information.

Reviewed in our October 2026 Texas fact-check.

Correct

The answer is B: Yes, because Janet has insurable interest in her own life.

Insurable interest is required between the POLICYOWNER and the INSURED. Since Janet owns the policy on her own life, insurable interest exists, and as policyowner she may generally name anyone she wishes as beneficiary. Texas law also gives a beneficiary that an adult designates on a policy on his or her own life an insurable interest (Insurance Code §§1103.053-.054), apart from narrow exceptions such as a funeral business, so Mike needs no financial tie to Janet. Texas does not require beneficiaries to be blood relatives, and the beneficiary does not need to pay premiums.

Source: Insurance Code §1103.053

Correct

The answer is A: Buying a policy on your spouse, who shares your finances.

Spouses have a clear insurable interest in each other — emotional and financial dependency. Admiration, curiosity, or casual acquaintance do not create insurable interest. The classic categories of insurable interest are: yourself, spouse, immediate family (parents/children), business partners, and creditors (limited to debt amount).

Reviewed in our October 2026 Texas fact-check.