Characteristics of Insurance Contracts

Question 1

6 Characteristics of insurance contract

Answer 1

1. ) Personal: follows the person, not the property.
2. ) Contract of Adhesion: insurer is responsible for the terms, insured has no say in the wording, courts favor insured if contract is ambiguous.
3. ) Utmost good faith: applicants expected to be honest about risk to insurer, also applies to insurer (if not, policy can be voided).
4. ) Aleatory: depending on an unknown future event.
5. ) Unilateral: Insurer has an obligation to pay for covered losses, but the insured has no obligation to continue paying premiums.
6. ) 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.

Question 2

Basic sections of a typical policy

Answer 2

1. ) Declarations page
   - ->Definitions
2. ) Insuring Agreement
3. ) Conditions
4. ) Exclusions
   - ->Endorsements

Question 3

6 Traits of insurance contract: Utmost good faith

Answer 3

Both parties must act honestly and openly in order for the contract to be valid.

Question 4

6 Traits of insurance contract: Adhesion

Answer 4

One party sets the terms of the contract, the other may simply agree or not agree.

Question 5

6 Traits of insurance contract: Unilateral

Answer 5

Only the insurer makes a promise to act; the insured can void contract at any time.

Question 6

6 Traits of insurance contract: Personal

Answer 6

The insured person is protected from losses, not the covered property.

Question 7

6 Traits of insurance contract: Conditional

Answer 7

The insurer must only honor the contract if the insured meets certain conditions.

Question 8

6 Traits of insurance contract: Aleatory

Answer 8

The execution of the contract depends on an unknown future event.

Question 9

Declarations page

Answer 9

• 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

Question 10

Insuring agreement

Answer 10

• 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

Insurer specifies any limits or qualifications the policyholder must meet.

Question 12

Common exclusions

Answer 12

• earthquakes
• flooding
• war
• nuclear hazards
• intentional acts

Question 13

Endorsements (aka: Rider, addendum, attachment) are added to policy to

Answer 13

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

Question 14

Certificate of insurance

Answer 14

• includes basic details of the insurance policy
• Constitutes proof of coverage
• Often required for rivers

Question 15

Conditions

Answer 15

Lists requirements that the insured must meet for coverage to apply

Question 16

Definitions

Answer 16

Information that makes the policy unique to a specific insured.

Question 17

Exclusions

Answer 17

Causes of loss or items of property that are not covered by the policy.

Question 18

Endorsements

Answer 18

Add, reduce, or change the coverage of the policy in some way.

Question 19

Definitions

Answer 19

Explains exactly what specific words mean in the context of the policy.

Question 20

Insuring agreement

Answer 20

Essence of the contract. Summarizes what the insurer will cover and how.