All of the following statements concerning a life insurance contract that is not supported by an insurable interest are correct EXCEPT:

• A. The courts will enforce the contract in most instances.
• B. It is an illegal contract.
• C. The contract can be carried out according to its terms if the insurer chooses to do so.
• D. It is a wagering contract.

Answer: (A)

Not having an insurable interest at the time the policy is issued makes a life insurance contract void and treated as a wagering contract. Because of that, courts do not enforce such arrangements in most cases, so the statement about court enforcement is not correct. The contract is illegal and falls under the wagering contract category. Some insurers may opt to honor a policy anyway as a discretionary act, but that does not make the contract legally enforceable; it merely reflects a unilateral decision by the insurer. The essential lesson is that insurable interest is required for a life policy to be valid.