Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What are the three essential elements for a legally enforceable contract?

1. Insurable interest, utmost good faith, indemnity

2. Written agreement, legal representation, mutual consent

3. Clear terms, signed documentation, witness validation

4. Financial terms, delivery conditions, breach notification

The correct answer is: Insurable interest, utmost good faith, indemnity

The three essential elements for a legally enforceable contract include offer, acceptance, and consideration. While your answer points to concepts pertinent to insurance contracts, it does not specify the foundational elements of contract law in general. In the context of insurance, insurable interest means that the insured must benefit from the preservation of the subject of insurance, and utmost good faith refers to the expectation that both parties will act honestly and disclose all relevant information. Indemnity involves reimbursing the insured for losses in accordance with the policy terms. These principles guide the execution of insurance contracts but are not the fundamental components of any legal contract. For a contract to be legally enforceable in general legal terms, it must consist of a clear offer, acceptance of that offer, and consideration (something of value exchanged between the parties). Understanding these core principles is crucial for assessing the validity of any contractual agreement, including but not limited to insurance contracts.