Insurance Broker Certification Practice Exam

Which of the following is required for legal purpose in an insurance contract?

1. The contract must have a witness present

2. The purpose of the contract must be legal and not against public policy

3. The parties must be from the same state

4. The contract must be signed in front of a notary

The correct answer is: The purpose of the contract must be legal and not against public policy

The requirement that the purpose of the contract must be legal and not against public policy is a fundamental principle in contract law and applies specifically to insurance contracts as well. Insurance services are heavily regulated, and any contract that involves illegal activities or is formed for unlawful purposes is voidable and unenforceable. In the context of insurance, this means that if the insured's intent or the nature of the insurance policy violates any laws or is contrary to public interests (such as insuring a criminal act), the contract cannot be legally upheld. This principle ensures that insurance serves its intended function—providing protection against risk—without promoting or endorsing illegal behavior. Other options, such as the need for a witness, the residency of the parties, or notarization, may pertain to specific regulations or requirements depending on state laws or the type of contract, but they are not universally required for the validity of an insurance contract. Legal purpose remains a core requirement for any binding agreement, including those related to insurance.