Unit 2: Insurance Contracts

Flashcards

Agreement

One of the four essential elements of a valid contract.

Consideration

One of the four essential elements of a valid contract; the exchange of value (insured's premium and insurer's promise to pay).

Competent Parties

One of the four essential elements of a valid contract; individuals of legal age and mentally competent at the time of agreement.

Legal Purpose

One of the four essential elements of a valid contract; the contract must be for a lawful reason and not against public policy.

Contract of Adhesion

A contract prepared by one party (insurer); the other party (insured) must accept it as is.

Aleatory Contract

A contract where the values exchanged are unequal, based on chance.

Unilateral Contract

Only one party (the insurer) makes a legally enforceable promise.

Conditional Contract

The insurer's promise to pay is conditional on the insured's compliance with policy terms.

Personal Contract

A contract between the insurance company and the individual insured.

Representation

A statement believed to be true, used when applying for insurance.

Misrepresentation

A false statement made on an insurance application.

Material Misrepresentation

A false statement that would affect the insurer's underwriting decision.

Warranty

A statement that is guaranteed to be true; breach may void the policy.

Concealment

Intentional failure to disclose material facts that may affect coverage.

Fraud

An intentional act to deceive or cheat the insurer.

Waiver

Voluntary relinquishment of a known legal right.

Estoppel

A legal principle that prevents a party from denying a fact if their actions led another to believe it was true.

Parol Evidence Rule

A written contract cannot be changed by oral evidence once finalized.

Binder

A temporary agreement providing coverage until a formal policy is issued.

Indemnity

Restoring the insured to the same financial position as before the loss.

Utmost Good Faith

Both parties are expected to act honestly and disclose all relevant information.

Insuring Agreement

States the insurer's promise to pay for covered perils.

Declarations Page

Contains who, what, when, and how much key policy information.

Policy Conditions

Rules the insured must follow for coverage to apply.

Policy Exclusions

Specific risks or causes of loss not covered by the policy.

Endorsements

Modify the original policy coverage terms.

Principle of Indemnity

Prevents the insured from profiting from a loss.

Valued Contract

Pays a predetermined amount regardless of actual loss (e.g., life insurance).