02.The Insurance Contract - 1

Question 1

Insurance

Answer 1

Financial tool that protects individuals and organizations from unforeseen and extraordinary financial losses by transferring risk to another party

> insured purchases an insurance policy
insurer provides financial protection to the insured

Question 2

Premium

Answer 2

A scheduled and affordable fee, paid by the policyholder to the insurer, in return for coverage.

Question 3

Claim

Answer 3

The request for settlement that the policyholder files with an insurer after she experiences a loss.

Question 4

Principle of Indemnity

Answer 4

The principle behind all insurance contracts. It states that, when a loss occurs, the insured should be restored to his or her financial condition before the loss occurred, no better, no worse. The insured cannot profit from a loss.

Question 5

Reserve (noun)

Answer 5

Collected premiums set aside by the insurer for paying claims.

Question 6

Indemnification

Answer 6

Reimbursement for a loss, which leaves the claimant in the same financial position that she was in before the loss. (Makes them whole again)

Question 7

Insurance Policy

Answer 7

The legal contract between the insurer and the insured, which establishes the terms of their agreement.

Question 8

Q: what are the 4 requirements for a legally binding contract (I.e. an insurance policy) ?

Answer 8

1. Agreement (offer & acceptance)
   
   • mutual consent between the offeror and offeree.
2. Consideration
   
   • all parties bring something of value (agreed exchange must be fully satisfied)
3. Competent parties
   
   • atleast 18, sober, sane.
4. Legal purpose
   
   • must not be illegal (fucking duh)

Question 9

Q: what ways can an offer be terminated?

Answer 9

> revocation by offeror
> rejection by offeree
    - explicit rejection
    - proposal of new offer
    - counteroffer

> time lapse
> termination by operation of law 
    - either party dies/becomes disabled
    - performance of contract becomes illegal       after the offer
    - subject matter is destroyed

Question 10

Insured

Answer 10

Individual or organization that pays premiums in exchange for financial protection.

Question 11

Insurer

Answer 11

Company, group, or government agency offering financial protection.

Question 12

Q: What are the six characteristics of an insurance contract?

Answer 12

A:

1. Personal
2. Adhesion
3. Utmost Good Faith
4. Aleatory
5. Unilateral
6. Conditional

Question 13

Personal ( characteristic of contract )

Answer 13

The contract protects the person, not the insured item.

Question 14

Adhesion ( characteristic of contract )

Answer 14

An unequal balance of power (held by insurer)

The insurer is responsible for the terms of the contract, while the insured has no say in the wording.

Courts favor the insured in the event of an ambiguity.

Question 15

Doctrine of Reasonable Expectations

Answer 15

The contract should be interpreted as a reasonable person who is not trained in the law would interpret it.

Question 16

Utmost Good Faith ( characteristic of contract )

Answer 16

Applicants are expected to be completely honest about the risk to the insurer.

The insurer must rely on applicants not to conceal or misrepresent pertinent facts.

Question 17

Aleatory ( characteristic of contract )

Answer 17

Depending on an unknown future event.

Question 18

Unilateral ( characteristic of contract )

Answer 18

Only one party is obligated to perform an act

• the insurer has an obligation to pay for covered losses.
• the insured has no obligation (he can stop paying premiums).

Question 19

Conditional ( characteristic of contract )

Answer 19

The contract only performs when certain conditions are met.

• The insurer only has to perform if certain conditions are met (covered losses).
• The insured must fulfill all conditions listed on the policy.