General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A contract to pay a person money if a stranger is hospitalized is signed by a party with no connection to the stranger. This arrangement fails the contract element of lawful purpose because it is essentially:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Every valid contract, including an insurance contract, must have a lawful purpose. Genuine insurance transfers risk to which the insured is exposed - the insured must have an insurable interest in the subject. A person with no connection to a stranger has no insurable interest, so the arrangement is a wager on another's misfortune, which public policy forbids. The lack of insurable interest defeats the lawful-purpose element.
Why the other options are wrong
- B) Adhesion and ambiguity concern policy drafting and interpretation, not the legality of the arrangement.
- C) Unilateral and conditional describe the structure of insurance contracts; neither explains why this arrangement is unlawful.
- D) Notice provisions relate to performance conditions, not to whether the contract has a lawful purpose.
Memory hook
No stake in the loss = a bet, not insurance. Insurable interest keeps it lawful.