Texas General Lines — Life, Accident, Health and HMOTexas Statutes and Rules Common to Life, Accident, Health and HMOHard
A life insurance policy is issued without an insurable interest existing between the policyowner and the insured at the time of policy inception. Under Texas law, what is the status of such a policy?
- AVoid from its inception
- BVoidable by the insurer within 2 years of issuance
- CSubject to a penalty but otherwise enforceable
- DValid if premiums are continuously paid for 5 years
Show answer & explanationAnswer & explanation
Correct answer: A. Void from its inception
In Texas, a life insurance policy issued without the required insurable interest at the time of inception is considered void from its beginning (void ab initio), as it fundamentally lacks one of the essential elements for a valid insurance contract.
Why the other options are wrong
- B. Voidable policies are typically due to misrepresentation, not a lack of fundamental insurable interest.
- C. A policy void from inception cannot be enforced, nor is it simply subject to a penalty; it is invalid.
- D. The payment of premiums does not validate a policy that was void from its inception due to lack of insurable interest.
Insurable Interest (Life)
The financial or emotional relationship between the policyowner and the insured that must exist at the time a life insurance policy is issued to prevent gambling on human life.
- Required at policy inception
- Protects against moral hazard
- Lack thereof renders policy void
Memory trick: No 'heart' (interest), no 'start' (void from inception).