If an insurer issues a contract in a state where it is not licensed to do business, which statement is correct?

If an insurer issues a contract in a state where it is not licensed to do business, which statement is correct?

• A. I only
• B. II only
• C. Both I and II
• D. Neither I nor II

Answer: (A)

Licensing is required for an insurer to transact business in a state, and the sale of a policy there without that license isn’t authorized. When a contract is issued in an unlicensed state, it isn’t a legally enforceable transaction in that state. The insurer can face penalties, and the insured is typically entitled to cancel and receive a refund of premiums rather than having the policy enforced. Because of that, only the first statement aligns with how licensing rules work in this scenario. The second statement would imply enforceability or relief that isn’t supported by the licensing requirement.

Licensing is required for an insurer to transact business in a state, and the sale of a policy there without that license isn’t authorized. When a contract is issued in an unlicensed state, it isn’t a legally enforceable transaction in that state. The insurer can face penalties, and the insured is typically entitled to cancel and receive a refund of premiums rather than having the policy enforced.

Because of that, only the first statement aligns with how licensing rules work in this scenario. The second statement would imply enforceability or relief that isn’t supported by the licensing requirement.