Elements of Insurance Contracts and Policy Structure

These flashcards cover key vocabulary and concepts related to insurance contracts, including elements essential for a legally binding contract, representations and warranties, basic components of an insurance policy, and federal regulations affecting insurance practices.

Agreement

A clear offer from one party and explicit acceptance by the other, forming the basis of a contract.

Consideration

The exchange of value that makes a contract legally enforceable, including premiums and a promise to pay for losses.

Competent Parties

Both parties involved in a contract must be legally competent, meaning they must be of legal age, mentally sound, and not under the influence of substances.

Legal Purpose

The requirement that a contract must be for a lawful reason and not against public policy.

Representations

Statements made by the insured that they believe to be true, which are not guaranteed to be so.

Material Misrepresentations

Untrue statements on an application that can impact the insurer’s underwriting decision.

Warranties

Absolutely true statements that must be adhered to for the policy to remain valid.

Concealment

The intentional withholding of material information by the insured that may void the policy.

Binder

A temporary insurance contract that provides coverage until a formal policy is issued.

Declarations

The first page of a policy that includes underwriting details like policyholder’s name, coverage type, premium, and locations insured. (Who,What, When where, and how much are covered by the insurance.)

Insuring Agreement

The core of the policy outlining the insurer’s promise to pay for covered risks.

Endorsements

Legal modifications added to a policy that can alter, add, or remove coverage.

Exclusions

Lists perils that are not covered by the insurance policy.

Policy Limits

The maximum amount that can be paid for a covered loss under the policy.

Proof of Loss

A written statement that must be submitted by the insured before any claim under a policy can be paid.

Fair Credit Reporting Act (FCRA)

Establishes procedures that protect consumers from false or outdated personal/financial information.

Gramm-Leach-Bliley Act (GLBA)

Limits disclosure of nonpublic personal information by insurance companies unless specific conditions are met.

Terrorism Risk Insurance Act (TRIA)

Creates a federal program to assist insurers in managing risks from terrorist attacks.