The insurance Contract Flashcards
Identify special characteristics associated with insurance contracts, including the principle of indemnity.
- competent parties;
- legal purpose (policy which violates the law is not enforceable);
- offer and acceptance (agreement); and,
- consideration: consideration is a thing of value exchanged for the performance promised in the contract.
The consideration with respect to the insured is the premium payment. The consideration the insurer gives is the promise to pay for certain losses suffered by the insured.
Describe the elements of a Legally valid contract… And how those elements of fly in an insurance transaction.
A contract is a legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration.
When an insurance company agrees to pay for an insured’s losses in exchange for a certain premium, the two-parties enter into a contract.
A contract may be oral but it is usually written in the form of insurance policy.
Explain the role of the five sections found in most insurance policies:
1: declarations: usually on the first page of the policy, more or less a basic overview including name, address, amount of coverage provided, cost of policy, description of the property, etc.
2: insuring agreements: The heart of the policy, state in general what is to be covered… The losses for which the insured will be indemnified. The section also discuss describes the type of property covered and the perils against which it is insured.
3: conditions: State the ground rules for the policy. They describe the responsibilities and obligations of both the insurance company and the insured.
4: exclusions: describe the losses which are excluded, and for which the insured will not be indemnified.
5: definitions: clarifies the minions of certain terms used in the policy.
Describe how insurance policies may be organized.
1: some policies contain the declarations, ensuring agreement, conditions, definitions, and exclusions all in one single, continuous page.
2: another format uses a policy jacket, also called the skeleton policy that contains general conditions and the declarations. To complete the policy policy for more coverage for containing the insured agreements exclusions, definitions, and additional coverages must be attached.
3: another format features a declarations page, the coverage form containing the coverages and certain exclusions, definitions and conditions, a separate general conditions form, and the causes of loss form list in the perils insured against an additional exclusions.
Explain the purpose of endorsements.
It is often necessary to modify or change the original policy in someway, such as broadening coverage, restricting coverage, or changing the name of the insured. This is accomplished by adding an endorsement, which is attached to the policy itself.
The principle of Indemnity
An insurance contract is a contract of indemnity.
The principle of indemnity states that when a loss occurs, an individual should be restored to the approximate financial condition he was in before the loss, no more and no less.
According to the principle of indemnity, you should not be able to collect the full amount of a loss from both a friend or other person, and the insurance company.
It and insured may only be indemnified to the extent of his insurable interest. Insurance is not gambling – the insured doesn’t win or lose.
Personal
An insurance contract does not insure property; it insures the person who owns the property. This means it is a personal contract.
Aleatory
An insurance contract that is ALEATORY, which means it is contingent on an uncertain event, loss, that provides for an unequal transfer a value between the parties.
Probably applies to long-term care insurance.
And insured can pay premiums for many years without having a covered loss. On the other hand, insureds who suffer a loss of…get a great deal more from the insurance company than they paid in premiums.
Adhesion
Adhesion in contracts mean that one party has greater power over the other party in drafting the contract.
The provisions of the contract are prepared by one party – the insurer. The other party, the insured, does not take part in the preparation of the contract. Although the insured may request special provisions or coverages, it is the insurance company that ultimately draws up and issues the policy.
The problem that sometimes arises in insurance contracts is ambiguity, which occurs when the insured (insurance co.?) doesn’t make the terms and agreements of the policy perfectly clear.
Since an insurance policy is an adhesion contract, the courts usually resolve any ambiguity in policy wording in favor of the insured.
When doing so, the courts may rely on the doctrine of reasonable expectations, which states that a policy includes coverage that an average person would reasonably expect to be included, regardless of what the policy actually provides.
Unilateral
An insurance policy is a unilateral contract. It is one sided only because the insurance company is legally bound to perform its part of the agreement.
If an insured pays a premium and a loss occurs, the insurer is legally bound to pay for the loss under the terms of the policy. However, insureds are not legally obligated to pay premiums.
Contract of utmost good faith
Another characteristics of an insurance contract it is is that it is a contract of utmost good faith.
The insurance company relies on the truthfulness and integrity of the applicant when issuing a policy. And return insured delays on the companies from us and ability to provide coverage and pay claims.
Conditional
An insurance policy includes a number of conditions that both the insured and insurer must comply with.
For example, if a covered loss occurs, the insured must notify the insurer about the loss, and the insurer must use the valuation methods specified in the policy to settle the loss. For this reason, an insurance policy is a conditional contract.
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