South Carolina Life Insurance Practice Exam

Which two elements are necessary for a life insurance contract to have a legal purpose?

1. Mutual agreement and financial capacity

2. Insurable interest and consent

3. Written agreement and premium payment

4. Disclosure of information and competent parties

The correct answer is: Insurable interest and consent

For a life insurance contract to have a legal purpose, it is essential to establish insurable interest and obtain consent. Insurable interest refers to the requirement that the policyholder has a legitimate interest in the continued life of the insured individual. This means that the policyholder would suffer a financial loss or hardship if the insured were to pass away. It is a crucial element to prevent wagering contracts, where someone might take out a policy on someone else's life without any vested interest. Consent is also a fundamental aspect, ensuring that the individual whose life is insured agrees to the coverage. This protects the rights of the insured and ensures that they are fully aware of the policy and its implications. Without these two elements, the life insurance contract would not be valid under the law, as it would lack a clear, ethical basis. Other answer choices do not adequately address the legal purpose of a life insurance contract. While mutual agreement and financial capacity, a written agreement and premium payment, or disclosure of information and competent parties are important components of insurance contracts, they do not specifically capture the legal necessity of insurable interest and consent, which are foundational to the legality and enforceability of life insurance policies.