General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An insurer issues a policy to indemnify a person for fines that would be imposed for operating an illegal gambling business. Under contract law, this policy would be:
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
One of the four essential elements of a valid contract is a legal purpose. A contract whose object is to indemnify illegal activity or to protect the proceeds of wrongdoing violates public policy and is void from the outset. Consideration alone cannot save a contract whose purpose is unlawful, and neither party can enforce a void contract. This is why the legal purpose element is mandatory for every insurance contract.
Why the other options are wrong
- A) Consideration is only one element of a valid contract; legal purpose is equally required, and here it is missing.
- B) A void contract cannot be enforced by either party; it is not merely voidable at the insurer's option.
- D) No payment of premium can make an unlawful contract enforceable.
Memory hook
Without a legal purpose, there is no valid contract at all.