Audit And Assurance Practice Exam

Why is contractual capacity relevant to an insurance contract?

It replaces the need for consideration The parties must have legal ability to enter into the contract It determines the physical severity of every insured loss It guarantees a claim will occur

Correct Answer:

The parties must have legal ability to enter into the contract

Explanation:

Capacity concerns whether a person or entity has legal competence to enter a binding contract. Lack of capacity can affect enforceability.

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