Insurance Broker Certification Practice Exam

What kind of insurance contracts have to have a legal purpose?

1. All insurance contracts

2. Only commercial insurance contracts

3. Only personal insurance contracts

4. No insurance contracts require legal purpose

The correct answer is: All insurance contracts

Insurance contracts universally must have a legal purpose. This requirement ensures that the overarching principles of law and public policy are upheld. For an insurance contract to be valid and enforceable, it must relate to a risk that is lawful and not against public policy. This means that contracts covering illegal activities, such as insurance for criminal acts or illicit businesses, would not meet this essential criterion. Furthermore, the legal purpose of an insurance contract demonstrates respect for societal norms and the legal framework within which insurers operate, protecting all parties involved. This foundational principle applies equally to both commercial and personal insurance contracts, highlighting that the requirement is not limited to a specific type of insurance but is applicable to all contracts as a fundamental aspect of contract law.