Life insurance is considered a personal contract because it:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Life insurance is personal in nature because it is rooted in the life and insurable interest of the person insured. The policyowner must have an insurable interest in the insured at the inception of coverage under CIC Section 10110, and the contract relates to the continued existence of that person. This personal character distinguishes life insurance from contracts that attach to property and underlies the rules on who may own coverage on whom. Ownership may be assigned in some circumstances, but the insurable interest requirement and the personal nature of the contract remain governing principles.
Why the other options are wrong
- C) While ownership of a life policy may be assigned, the insurable interest requirement and the personal nature of the contract remain limiting principles. It is not freely transferable without regard to these rules.
- D) Premiums are based on the insured's age, health, and risk characteristics, not on the characteristics of the agent who sells the policy. This statement does not survive the statutory analysis presented above and is therefore wrong.
- B) Proceeds may be paid to any named beneficiary, such as a family member or a trust. They are not limited to the policyowner's estate. The correct answer follows from the controlling authority, which this option does not follow.
Memory hook
Personal contract = built on one life. Insurable interest must exist when coverage begins, not just at the claim.