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Questions and Answers
What must be present for a contract to be legally valid and binding?
What does it mean if an insurance contract is described as aleatory?
Which statement best describes a voidable contract?
What is required from insurance applicants during the application process?
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How does a valued contract differ from an indemnity contract?
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What happens to an offer when it is answered with a counter-offer?
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What defines an aleatory contract in insurance?
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Which of the following best describes a contract of adhesion?
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What is the meaning of rescission in the context of insurance contracts?
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What does 'utmost good faith' mean regarding insurance contracts?
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Who is considered competent to conduct insurance business?
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What is the significance of ambiguities or confusing language in a contract of adhesion?
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Which term describes the insurer’s promise to pay benefits depending on the occurrence of an event?
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What type of authority is based on the appearance or assumption of authority?
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In insurance, what is a representation?
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Which term refers to the voluntary giving up of a legal right?
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What is the main purpose of tort law?
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What kind of negligence involves a reckless disregard for the need to act in a reasonable manner?
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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
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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.