Characteristics of Insurance Contracts Flashcards
6 Characteristics of insurance contract
- ) Personal: follows the person, not the property.
- ) Contract of Adhesion: insurer is responsible for the terms, insured has no say in the wording, courts favor insured if contract is ambiguous.
- ) Utmost good faith: applicants expected to be honest about risk to insurer, also applies to insurer (if not, policy can be voided).
- ) Aleatory: depending on an unknown future event.
- ) Unilateral: Insurer has an obligation to pay for covered losses, but the insured has no obligation to continue paying premiums.
- ) Conditional: Insurer only has to perform if certain conditions are met (such as covered losses). The Insured must fulfill all conditions listed in the policy.
Basic sections of a typical policy
- ) Declarations page
- ->Definitions - ) Insuring Agreement
- ) Conditions
- ) Exclusions
- ->Endorsements
6 Traits of insurance contract: Utmost good faith
Both parties must act honestly and openly in order for the contract to be valid.
6 Traits of insurance contract: Adhesion
One party sets the terms of the contract, the other may simply agree or not agree.
6 Traits of insurance contract: Unilateral
Only the insurer makes a promise to act; the insured can void contract at any time.
6 Traits of insurance contract: Personal
The insured person is protected from losses, not the covered property.
6 Traits of insurance contract: Conditional
The insurer must only honor the contract if the insured meets certain conditions.
6 Traits of insurance contract: Aleatory
The execution of the contract depends on an unknown future event.
Declarations page
- Names both parties
- Policy number
- Location and description of insured item
- Value of insured item
- Dates of the policy
- Amount and limit of coverage
- Deductible
- Premium
Insuring agreement
- What is covered.
- Which causes of loss are covered.
- Any services provided.
- Any exclusions to coverage.
- The maximum limit of policy coverage in dollars.
Conditions
Insurer specifies any limits or qualifications the policyholder must meet.
Common exclusions
- earthquakes
- flooding
- war
- nuclear hazards
- intentional acts
Endorsements (aka: Rider, addendum, attachment) are added to policy to
- add or reduce coverage
- change policy provisions
- change the premium price after the policy period ends
Certificate of insurance
- includes basic details of the insurance policy
- Constitutes proof of coverage
- Often required for rivers
Conditions
Lists requirements that the insured must meet for coverage to apply
Definitions
Information that makes the policy unique to a specific insured.
Exclusions
Causes of loss or items of property that are not covered by the policy.
Endorsements
Add, reduce, or change the coverage of the policy in some way.
Definitions
Explains exactly what specific words mean in the context of the policy.
Insuring agreement
Essence of the contract. Summarizes what the insurer will cover and how.