1/B - Characteristics of Insurance Contracts

Question 1

Personal Contract

Answer 1

Insurance is a personal contract.

• It protects the policyholder from financial losses
• It does not protect property from becoming damaged
• Coverage follows the person, not the property

Question 2

Adhesion

Answer 2

Insurance is a Contract of Adhesion.

• The insurer is responsible for the terms of the contract
• The insured has no say in the wording
• Courts favor the insured in the event of an ambiguity

Doctrine of Reasonable Expectations
The contract should be interpreted as a reasonable person would interpret it.

Question 3

Utmost Good Faith

Answer 3

Insurance contracts assume Utmost Good Faith.
This means:
- 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 4

Aleatory

Answer 4

Insurance Contracts are Aleatory.

Aleatory: depending on an unknown future event

• Neither party can know future losses
• Insurer only has to pay if and when covered losses occur
• Policyholders could pay more in premiums than they ever get for claims, or insurer could pay more in claims than it receives

Question 5

Unilateral

Answer 5

Insurance Contracts are Unilateral.
In an insurance contract:
- The insurer has an obligation to pay for covered losses
- The insured has no obligation (he can stop paying premiums)

Question 6

Conditional

Answer 6

This means:

• The insurer only has to perform if certain conditions are met (such as a covered loss)
• The insured must fulfill all conditions listed in the policy

Question 7

Four Sections of a Policy

Answer 7

An insurance contract has four essential parts:

1. Declarations Page
2. Insuring Agreement
3. Conditions
4. Exclusions

Remember: D.I.C.E!

Question 8

Declarations Page (“Dec Page”)

Answer 8

Makes contract specific to the policyholder
Always the first section; it establishes:
- Names of both parties (insured and insurer)
- Policy number
- Location & description of insured item
- Value of insured item
- Dates of the policy (beginning and end)
- Amount and limit of coverage
- Deductible
- Premium

Question 9

Definitions

Answer 9

• Is not technically essential, but common in policies
• Defines terms used to write policy including:
  a. “collision,” “decay,” “like kind and quality”
• Includes important language for adjusters to know

Question 10

Insuring Agreement

Answer 10

Summarizes:

• What is covered
• Which causes of loss are covered
• Any services provided
• Any exclusions to coverage
• The maximum limit of policy coverage in dollars

Question 11

Conditions

Answer 11

The insurer specifies any limits or qualifications the policyholder must meet

Question 12

Exclusions

Answer 12

Exclusions list what the policy does not cover.
Common Exclusions (in nearly all property policies):
- Earthquakes
- Flooding
- War
- Nuclear hazards
- Intentional acts

Question 13

Endorsements

Answer 13

Endorsements are additions to the policy that can:

• add or reduce insurance coverage
• change policy provisions
• change the premium price after the policy period ends

Synonyms:

• Rider
• Addendum
• Attachment

Question 14

Certificate of Insurance

Answer 14

• Includes basic details of the insurance policy
• Constitutes proof of coverage
• Often required for drivers