General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A contract of insurance that covers the insured's planned criminal activity would fail which essential element of a valid contract?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Every valid contract must have a legal purpose — an objective the law permits. A policy that would indemnify losses from planned criminal conduct encourages wrongdoing and violates public policy, so the contract lacks legal purpose and is unenforceable. Agreement, consideration, and capacity may all be present, but an illegal objective voids the contract.
Why the other options are wrong
- B) Agreement (offer and acceptance) can exist even for an illegal arrangement; it is the purpose that fails.
- C) Premium can be exchanged, but consideration cannot cure an illegal purpose.
- D) The parties may be competent adults yet still lack legal purpose.
Memory hook
The law will not insure a crime. Legal purpose is the contract's seal of approval.