Insurance Contracts

Question 1

What are the 4 essential elements in order for insurance contracts to be legally binding?

Answer 1

Agreement - Offer and acceptance
Consideration
Competent parties
Legal Purpose

Question 2

What does Offer and Acceptance entail? (2 parts)

Answer 2

-The applicant makes the offer when submitting the application
-Acceptance takes place when an insurer’s underwriter approves the application

Question 3

What is consideration?

Answer 3

Consideration is something of value that each party gives to the other.

Question 4

What defines a competent party?

Answer 4

They must be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

Question 5

What defines a Legal Purpose?

Answer 5

The contract must be for a lawful reason, and not against public policy.

Question 6

What are statements believed to be true to the best of one’s knowledge?

Answer 6

Representations

Question 7

What are untrue statements on the application?

Answer 7

Misrepresentations

Question 8

What is an absolutely true statement upon which the validity of the insurance policy depends?

Answer 8

Warranty

Question 9

What is a legal term for the intentional wishholding of information of a material fact that is crucial in making a decision?

Answer 9

Concealment

Question 10

What is a binder?

Answer 10

A temporary agreement issued by the agent or insurer providing temporary coverage until a policy can be issued.
*They expire when the policy is issued.