Insurance Broker Certification Practice Exam

In the context of insurance, what is an example of a legally purpose?

1. Contracts for illegal gambling

2. Contracts for life insurance policies

3. Contracts for unlicensed activities

4. Contracts to commit fraud

The correct answer is: Contracts for life insurance policies

In the context of insurance, a legally permissible purpose refers to a situation where the contracts made comply with the laws and regulations governing insurance practices. Life insurance policies are a clear example of a legally permissible purpose as they are established under statutory laws intended to provide financial protection for individuals and their beneficiaries in the event of death. These policies are regulated by various laws that ensure they are offered and administered fairly and responsibly. They serve essential social and economic functions, such as providing families with income after the loss of a breadwinner, thereby supporting the public good. In contrast, the other options present either illegal activities or situations that lack the legal framework required for the formation of valid contracts. Gambling contracts may be legal in certain jurisdictions, but they do not fall under the scope of insurance. Similarly, contracts for unlicensed activities and contracts designed to commit fraud are against legal principles, thereby rendering them unenforceable. Thus, only life insurance policies exemplify a contract with a legitimate and lawful purpose in the insurance field.