South Carolina Life Insurance Practice Exam

A life insurance policy has a legal purpose if it includes which two elements?

1. Insurable interest and premium payment

2. Insurable interest and consent

3. Consent and beneficiary designation

4. Premium payment and beneficiary designation

The correct answer is: Insurable interest and consent

A life insurance policy is considered to have a legal purpose when it includes insurable interest and consent. Insurable interest refers to the requirement that the policyholder has a valid interest in the life of the insured. This ensures that the policyholder would suffer a financial loss or hardship upon the insured's death, which is fundamental to the purpose of life insurance. Consent is equally essential; it means that the insured individual must agree to the insurance policy being taken out on their life. This consent helps prevent policies from being issued without the knowledge or approval of the person whose life is being insured, thus maintaining ethical standards within the insurance industry. Together, these two elements—insurable interest and consent—validate the legally binding nature of a life insurance contract, ensuring it serves both a financial and a moral purpose aligned with the principles of insurance.