An applicant proposes to insure the life of an unrelated friend with whom she shares no business or financial relationship. Under California law, what is the result?

Why this is the answer

California Insurance Code § 10110.1 requires that the applicant have an insurable interest in the insured at the time the contract is made. Acceptable bases include close family (spouse, domestic partner, child, parent), substantial financial interest (business partner, key employee, creditor for the amount of debt), or a reasonable expectation of financial benefit from the continued life of the insured. Friendship alone — even with written consent — does not satisfy the statute, and § 10110.1(d) further bans stranger-originated life insurance (STOLI) where the policy is procured for resale to an investor with no insurable interest. Choice (d) is wrong because incontestability does not cure lack of insurable interest at issue.