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Insurance Contracts
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Insurance Contracts

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Questions and Answers

What must be present for a contract to be legally valid and binding?

  • Offer and consideration
  • Legal purpose and competent parties
  • Legal purpose and offer acceptance
  • Offer, acceptance, consideration, legal purpose, and competent parties (correct)
  • What does it mean if an insurance contract is described as aleatory?

  • There is a potential for an unequal exchange of value. (correct)
  • It is a non-negotiable contract.
  • It always results in a loss for one party.
  • It involves a high risk of fraud.
  • Which statement best describes a voidable contract?

  • It has no legal effect from the beginning.
  • The first offer was never made.
  • One party may set it aside for a reason acceptable to a court. (correct)
  • Both parties must agree to terminate it.
  • What is required from insurance applicants during the application process?

    <p>Full, fair, and honest disclosure of the risk</p> Signup and view all the answers

    How does a valued contract differ from an indemnity contract?

    <p>A valued contract pays a stated sum regardless of the actual loss incurred.</p> Signup and view all the answers

    What happens to an offer when it is answered with a counter-offer?

    <p>The original offer is void.</p> Signup and view all the answers

    What defines an aleatory contract in insurance?

    <p>A contract with a potential for unequal exchange of value</p> Signup and view all the answers

    Which of the following best describes a contract of adhesion?

    <p>It is prepared by one party without negotiation.</p> Signup and view all the answers

    What is the meaning of rescission in the context of insurance contracts?

    <p>The contract is made null and void.</p> Signup and view all the answers

    What does 'utmost good faith' mean regarding insurance contracts?

    <p>Both parties must disclose all relevant facts truthfully.</p> Signup and view all the answers

    Who is considered competent to conduct insurance business?

    <p>A licensed or authorized insurer</p> Signup and view all the answers

    What is the significance of ambiguities or confusing language in a contract of adhesion?

    <p>They involve legal interpretations.</p> Signup and view all the answers

    Which term describes the insurer’s promise to pay benefits depending on the occurrence of an event?

    <p>Conditional</p> Signup and view all the answers

    What type of authority is based on the appearance or assumption of authority?

    <p>Apparent authority</p> Signup and view all the answers

    In insurance, what is a representation?

    <p>A statement considered true and accurate by the applicant.</p> Signup and view all the answers

    Which term refers to the voluntary giving up of a legal right?

    <p>Waiver</p> Signup and view all the answers

    What is the main purpose of tort law?

    <p>To compensate for proved harm</p> Signup and view all the answers

    What kind of negligence involves a reckless disregard for the need to act in a reasonable manner?

    <p>Gross negligence</p> Signup and view all the answers

    Study Notes

    Insurance Contracts

    • Two parties to an insurance contract: the insured and the insurer
    • Four essential elements for a legally valid and binding contract:
      • Offer and acceptance
      • Consideration
      • Legal purpose
      • Competent parties

    Types of Contracts

    • Aleatory contract: potential for unequal exchange of value or consideration for both parties
    • Valued contract: pays a stated sum regardless of the actual loss incurred
    • Indemnity contract: pays an amount equal to the loss
    • Contract of adhesion: contract prepared by one party with no negotiation between the applicant and the insurer

    Elements of Insurance Contracts

    • Policy: written contract in which one party promises to indemnify another against loss
    • Insurable interest: financial interest a person must have to possess legally enforceable insurance coverage
    • Insurance applicants: required to make a full, fair, and honest disclosure of the risk to the agent and insurer
    • Policy rider/endorsement: legal attachment amending a policy

    Contract Essentials

    • Offer and acceptance: essential elements of a contract
    • Consideration: applicant gives consideration in exchange for the insurer's promise to pay benefits
    • Legal purpose: contract must have a legal purpose to be enforceable
    • Competent parties: essential element for a legally valid and binding contract

    Insurance Terminology

    • Warranty: statement made by the applicant that is guaranteed to be true in every respect
    • Representation: statement made by the applicant that they consider to be true and accurate
    • Concealment: failure or neglect to disclose a known material fact when applying for insurance
    • Agent: person who acts for another person or entity (principal) with regard to contractual arrangements
    • Express authority: authority a principal deliberately gives to its agent
    • Implied authority: unwritten authority assumed to have in order to transact the business of the principal
    • Apparent authority: appearance or assumption of authority based on the actions, words, or deeds of the principal

    Negligence and Tort Law

    • Types of negligence:
      • Simple negligence: failure to act in a reasonable or prudent manner
      • Gross negligence: reckless disregard for the need to act in a reasonable manner
      • Willful and wanton negligence: more severe than gross negligence
    • Tort law: provides full compensation for proved harm

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    Description

    Learn about the essential elements of an insurance contract, including offer and acceptance, consideration, legal purpose, and competent parties.

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