LLQP Ethics & Professional Practice · Component 1.3 · 60% of the exam
'Legality of purpose' as a formation requirement means an insurance contract is void if:
- AThe agent who sold it was unlicensed at the time, since a contract placed by an unlicensed person cannot stand
- BThe first premium was paid late, since the consideration must be provided on time for the contract to be lawful
- It is made for an illegal purpose, such as a wager on a life or a scheme to defraud creditors
- DThe premium is disproportionate to the benefit, since the courts will not enforce an unconscionable bargain
Correct answer: C) It is made for an illegal purpose, such as a wager on a life or a scheme to defraud creditors
Contracts contrary to statute or public policy are unenforceable.
Why the other options are wrong
- AAn unlicensed agent's involvement is a regulatory breach, not necessarily voiding the contract.
- BA late premium triggers the grace period, not illegality.
- DCost is irrelevant to legality.
Exam tip
Illegal purpose (wagering, fraud) → void.
Common mistake
Facilitating a policy the agent knows is intended to defeat creditors.
What this tests
CISRO competency component 1.3 — Integrate into practice the legal aspects of insurance and annuity contracts — which is weighted at 60% of the Ethics & Professional Practice module. Written against the published curriculum.
More from component 1
- An 'assignee' of a life insurance policy is:
- A corporation as policyowner and beneficiary of a policy on a key employee:
- A 'trustee' named to receive proceeds on behalf of a beneficiary:
- The 'automatic premium loan' (APL) provision:
- A life insurance contract 'matures' when:
- The 'assignment' provision typically states that:
Practice the whole Ethics & Professional Practice module
Timed sets weighted like the exam, and review of every question you miss. Free to start.