Which statement is NOT correct regarding capacity in life insurance contracts?

Which statement is NOT correct regarding capacity in life insurance contracts?

• A. It takes less capacity to be a principal than to be an agent.
• B. Legal capacity is necessary for a principal or agent.
• C. There must be the capacity to execute a contract in order to be a principal.
• D. A partnership can usually act as a principal.

Answer: (B)

The key idea being tested is capacity to contract in life insurance: who can enter into and bind a contract, and under what conditions. The statement that legal capacity is necessary for a principal or agent is not correct because capacity to contract can be supplied or represented in ways that don’t require the personal legal capacity of every individual involved. A principal can act through agents who have authority, and a contract can be valid due to that authority even if the agent’s personal situation doesn’t grant them full personal capacity. For example, a business entity (a corporation or partnership) has its own capacity to contract, and a guardian or other authorized representative can act on behalf of someone who lacks personal capacity (like a minor or someone who is incapacitated). These arrangements show that the existence of legal capacity in every individual isn’t always the controlling factor; what matters is that there is proper authority or representation to bind the principal. The other statements align with the general concepts: a principal must have the ability to enter a contract (capacity to execute), and a partnership can usually act as a principal.

The key idea being tested is capacity to contract in life insurance: who can enter into and bind a contract, and under what conditions.

The statement that legal capacity is necessary for a principal or agent is not correct because capacity to contract can be supplied or represented in ways that don’t require the personal legal capacity of every individual involved. A principal can act through agents who have authority, and a contract can be valid due to that authority even if the agent’s personal situation doesn’t grant them full personal capacity. For example, a business entity (a corporation or partnership) has its own capacity to contract, and a guardian or other authorized representative can act on behalf of someone who lacks personal capacity (like a minor or someone who is incapacitated). These arrangements show that the existence of legal capacity in every individual isn’t always the controlling factor; what matters is that there is proper authority or representation to bind the principal.

The other statements align with the general concepts: a principal must have the ability to enter a contract (capacity to execute), and a partnership can usually act as a principal.