General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
For a health insurance contract to be valid, the parties must have legal capacity and the contract must have a legal purpose. Which statement correctly applies this requirement?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Every valid contract requires competent parties and a legal purpose. The parties must have legal capacity to contract, and the objective must be lawful — insurance to transfer legitimate risk qualifies. A contract whose purpose is a wager on another's health is illegal and unenforceable. Capacity and legality are judged when the contract is formed; paying a premium does not cure a defect.
Why the other options are wrong
- B) Minors generally lack contractual capacity, and their contracts are voidable; capacity rules are not waived for health policies.
- C) Wagering on health is exactly the kind of unlawful purpose the legal-purpose requirement forbids.
- D) Premium payment cannot retroactively fix a lack of capacity or an illegal purpose at formation.
Memory hook
Capacity + legality = the contract's birth certificate. A wager or a minor at the table voids the deal.