8 Questions
Which of the following is not a requirement for a valid contract?
Unilateral terms
Which condition allows contract ambiguities to be resolved in favor of the policyholder?
Adhesion
What must be present for a party to be legally competent to enter into a contract?
Authorization/licensing and capacity
What does 'utmost good faith' imply in an insurance contract?
Both parties must act with honesty and integrity
Which element of a valid contract is defined as the 'lawful exchange of one value for another'?
Consideration
What characteristic of an insurance contract refers to an 'uncertain outcome'?
Aleatory
If a contract is found to have a legal purpose, what does it imply?
The contract cannot be contradictory to public good
Which of the following elements is not uniquely a characteristic of insurance contracts but is essential for any contract?
Competent Parties
Study Notes
Essential Elements of a Valid Contract
- A valid contract requires four essential elements: Agreement, Consideration, Competent Parties, and Legal Purpose
- Agreement involves an offer and acceptance, representing a meeting of the minds between the parties
- Consideration is the lawful exchange of one value for another, e.g., Application Information + Premium = Insurance Coverage
- Competent Parties means both parties must be legally competent to enter into a contract, with exceptions for minors, the insane, and those under the influence
- Legal Purpose means the contract must not be contradictory to the good of the public
Characteristics of an Insurance Contract
- Unilateral: a one-sided contract where the insurer makes a promise in exchange for an act already performed by the policyholder
- Adhesion: a contract where the policyholder must adhere to the terms drafted by the insurer, with ambiguities resolved in favor of the insured
- Aleatory: a contract where one party may receive a value greater than what was paid, based on a possible future happening
- Conditional: a contract where the insurer's promise to pay is conditioned on certain events or circumstances
- Personal: life insurance contracts are personal in nature, benefiting individuals
- Utmost Good Faith: both parties must act with honesty and integrity
- Fiduciary: a contract involving a position of trust and financial responsibility
This quiz covers the fundamental elements of a valid insurance contract, including agreement, consideration, and competent parties.
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