Requirements For A Valid Insurance Contract

There are five requirements for a valid insurance contract

  1. insurable interest
  2. legal capacity
  3. consideration
  4. meeting of the minds
  5. offer and acceptance

The insurance contract takes effect on the effective date.

Insurable Interest

Insurable interest exists if you (as the policyowner) expect to suffer a financial loss or fail to make a financial gain if the life insured dies

  • only required required when the policy is issued
    • after issue, you can assign the policy to a party without insurable interest

Automatically Assumed

You are automatically assumed to have insurable interest in life or lives of

  • yourself
  • your spouse
  • your children
  • your grandchildren
  • your employees
  • your business partners
  • your guarantor


Insurable interest is not required if the life insured agrees in writing


Without insurable interest, you cannot

  • receive policy benefits
  • get your premium refunded

Legal Capacity


  • exchange of value (i.e., the first premium)

Meeting Of The Minds

  • no mistake
    • unless mistake
      • is fundamental to the intent of the contract
      • would have prevented a party from agreeing to the contract
  • no misrepresentation (material, fraudulent or innocent)
    • unless misrepresentation is
      • material to the risk
      • a fact known to the party making the misrepresentation
    • if fraudulent, the contract can be terminated any time
    • if not fraudulent, the contract can be terminated during the contestable period

Offer And Acceptance

  • also called "mutual assent" or "bargain"
    • party 1: makes an offer to buy insurance via a signed application
    • party 2: accepts the offer by delivering the policy

The insurance contract takes effect on the effective date.

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