18 Questions
What must be present for a contract to be legally valid and binding?
Offer, acceptance, consideration, legal purpose, and competent parties
What does it mean if an insurance contract is described as aleatory?
There is a potential for an unequal exchange of value.
Which statement best describes a voidable contract?
One party may set it aside for a reason acceptable to a court.
What is required from insurance applicants during the application process?
Full, fair, and honest disclosure of the risk
How does a valued contract differ from an indemnity contract?
A valued contract pays a stated sum regardless of the actual loss incurred.
What happens to an offer when it is answered with a counter-offer?
The original offer is void.
What defines an aleatory contract in insurance?
A contract with a potential for unequal exchange of value
Which of the following best describes a contract of adhesion?
It is prepared by one party without negotiation.
What is the meaning of rescission in the context of insurance contracts?
The contract is made null and void.
What does 'utmost good faith' mean regarding insurance contracts?
Both parties must disclose all relevant facts truthfully.
Who is considered competent to conduct insurance business?
A licensed or authorized insurer
What is the significance of ambiguities or confusing language in a contract of adhesion?
They involve legal interpretations.
Which term describes the insurer’s promise to pay benefits depending on the occurrence of an event?
Conditional
What type of authority is based on the appearance or assumption of authority?
Apparent authority
In insurance, what is a representation?
A statement considered true and accurate by the applicant.
Which term refers to the voluntary giving up of a legal right?
Waiver
What is the main purpose of tort law?
To compensate for proved harm
What kind of negligence involves a reckless disregard for the need to act in a reasonable manner?
Gross negligence
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
Learn about the essential elements of an insurance contract, including offer and acceptance, consideration, legal purpose, and competent parties.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
