Legal Purpose

What Does Legal Purpose Mean?

The principle of legal purpose in insurance states that contracts insuring illegal activities or involving unlawful conditions are invalid. For instance, a liability insurance policy for a company engaged in bank robbery would be void, and any claims filed under such a policy would not be legally enforceable. A legitimate business looking to cover third-party injury or property damage claims would instead buy a standard product like general liability insurance, which is written for lawful operations.

Insuranceopedia Explains Legal Purpose

Legal purpose ensures that insurance companies do not provide coverage for criminal activities. Without this requirement, the crime rate could rise due to the reduced financial risk associated with criminal behavior. The rule does not stop a business from buying protection against losses caused by other people’s crimes, though, which is what commercial crime insurance is built to handle. Owners shopping for a policy that fits their actual operation can start by comparing options on the business insurance page.