Chapter 1: Key Terms Flashcards
Key Term: Acceptance
Definition: When two parties agree to the terms of a contract.
Key Term: Offer
Definition: Refers to the terms of an insurance contract as proposed by one party (the potential insurer) to another party (the potential insured).
E.g. Insurers provide a quotation to the proposer.
Key Term: Consideration
Definition: A benefit each party receives from the contract. The insured gives consideration by paying the premium and agreeing to follow the policy terms. In return, the insurer promises to provide coverage and pay for covered losses if they happen.
E.g. A premium is paid.
Key Term: Broker
Definition: An insurance broker is a professional who acts as an intermediary between a client and an insurer, helping the client find the best insurance policy to meet their needs.
Key Term: Duty of Disclosure
Definition: The duty of disclosure is the legal obligation for the insured to provide the insurer with all material information that could affect the insurer’s decision to accept the risk and on what terms.
Key Point: Consumer Insurance Act 2012 abolished the duty of disclosure for consumers which was modified and replaced by the duty of fair presentation for commercial contracts.
Key Term: Fair Presentation
Definition: Fair presentation means the insured must disclose all material circumstances about the risk in a clear and accessible way, ensuring the information is accurate and not misleading.
Key Point: Introduced by the Insurance Act 2015 (commercial consumers)
Key Term: Good Faith
Definition: Both the insured and the insurer have a legal duty to act honestly and fairly toward each other when entering into a contract.
Key Point: Originated from the Marine Insurance Act 1906.
The Consumer Insurance Act 2012 and Insurance Act 2015 softened the strictness of this duty but did not remove the overall requirement for honesty and fairness.
Key Term: Material Circumstances
Definition: Facts or information that would influence a prudent insurer’s decision about:
• Whether to accept the risk.
• What terms to offer.
• What premium to charge.
Key Point: Defined under the Insurance Act 2015 (applies to commercial insurance).
The insured has a duty to disclose material circumstances as part of a fair presentation.
Key Term: Material Information
Definition: ALL information that has a bearing on the risk and would influence the insurers decision about:
• Whether to accept the risk.
• What terms to offer.
• What premium to charge.
Key Point: Defined under the Marine Insurance Act 1906 (Consumer and commercial insurance).
Key Term: Misrepresentation
Definition: This is where a statement is substantially false, relates to the subject matter of the proposal, and has induced the insurer to enter the contract.
Example: health conditions, occupation, or lifestyle factors that affects the risk.
Key Term: Moral Hazard
Definition: Arises from the attitude and conduct of people.
E.g. Carelessness - a drivers lack of care increases the chance of an accident and its severity.
Key Term: Physical Hazard
Definition: Relates to the physical nature of the risk and includes measurable dimension of the risk.
E.g. Motor Insurance - age of driver, condition of vehicle etc.
Key Term: Non-Disclosure
Definition: The proposer simply fails to tell the insurer something they know, and it is something that would have made the insurer either not enter the contract or do so on different terms.
Key Term: Peril
Definition: Perils refer to specific risks or events that can cause damage, loss, or injury, which are typically covered by an insurance policy.
E.g. Fire, flood, theft, earthquake, or vandalism.
Key Term: Policy Wording
Definition: Policy wording refers to the detailed terms, conditions, and clauses outlined in an insurance policy document, which specify the rights, responsibilities, coverage, exclusions, and other critical information.
Key Term: Proposer
Definition: A proposer is the individual or entity who applies for an insurance policy.
