UNIT 2: Contract Characteristics

Question 1

What is a personal contract?

Answer 1

An insurance contract does not ensure property it ensures the person who owns the property this means it is a personal contract

Question 2

What does Aleatory mean?

Answer 2

this insurance is contingent on an uncertain event a loss that provides for unequal transfer a value between the parties.

And insured can pay premiums for many years without having a cover loss. On the other hand insured who suffer a loss often get a great deal more from the insurance company then they paid premiums

Question 3

What is an adhesion contract?

Answer 3

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 insured does not take part in the preparations of the contract. Although injured may request special provisions or coverages it is the insurance company ultimately draws up and issues the policy

Question 4

What problem sometimes occurs because of adhesion contracts? What do courts rely on to make judgments?

Answer 4

Ambiguity which occurs when the insurer doesn’t make the terms and agreements of the policy perfectly clear:

the courts may rely on the doctrine of reasonable expectations, which states that a policy includes coverage that an average person would reasonably expected to include regardless of what the policy actually provides

Question 5

What is a Unilateral contract?

Answer 5

Unilateral means one side and insurance policies one sided because only the insurance company is legally bound to perform it’s part of the agreement.

If an insured he’s a premium in a loss occurs the insurer is legally bound to pay for lost under the terms of the policy. However insured are not legally obligated to pay premiums

If insured stop paying premiums the insurance company can cancel coverage but you can’t take them to court for breaking the contract.

However if an insured fails to comply with conditions and duties specified in the contract the insurance company may deny an insurance claim

Question 6

What is a contract of utmost good faith?

Answer 6

The insurance company relies on the truthfulness and integrity of the applicant when issuing a policy. In return the insured relies on the company’s promise and ability to provide coverage and pay claims.

Question 7

What is a conditional contract?

Answer 7

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

Question 8

What is in indemnity?

Answer 8

The principle states that when a loss occurs and individual should be restored to the approximate financial condition he was in before the loss no more no less

Question 9

Write in: element of a valid contract…
Jack agrees to burn down Albert house for $10,000…

Susan’s insurance policy is canceled for nonpayment of premium…

Insurance company denies George’s application for auto insurance…

Andrea age 15 sign a lease for an apartment

Answer 9

Legal purpose: one of the requirements for a valid contract is that it be formed for a legal purpose. A contract that is in violation of law such as this example which involves arson is not enforceable.

Consideration: a valid contract must involve consideration – a thing of value exchanged for the performance promised in the contract. With insurance the consideration that the insured gives is the premium payment. Since Susan did not pay the premium there is no consideration involved.

Offer and acceptance: a contract involves two parties… One who makes an offer and one who excepts it. Since insurance company did not except George’s offer (an application for insurance) no contract exists

Competent parties: contract is not valid unless it is maybe two parties who are considered competent under the law. In most cases the person who is a minor is considered incompetent.

Question 10

List the purpose of each part of an insurance policy:

–Declarations:

Answer 10

Declarations:The declarations list who is insured, what property or risk is covered, when and where coverage is effective, and how much coverage applies.

Question 11

List the purpose of each part of an insurance policy:

–insuring agreements

Answer 11

Insuring agreements: insuring agreements describe what is covered and the perils The policy insures against

Question 12

List the purpose of each part of an insurance policy:

–conditions:

Answer 12

Conditions: The conditions explain the rights and duties of the insured and the insurer under the policy.

Question 13

List the purpose of each part of an insurance policy:

– exclusions:

Answer 13

Exclusions:The exclusion list property, parols, person, or situations that are not covered by the policy

Question 14

List the purpose of each part of an insurance policy:

–Definitions

Answer 14

–definitions: definitions clarify the meaning of certain terms used in the policy

Question 15

List the purpose of each part of an insurance policy:

–Endorsements:

Answer 15

–endorsements: endorsements are documents attached to the policy that change the policy in someway