Legal Concepts of the insurance contract

express authority

authority granted to the agent by the principal, which is the insurance company.

conditional

conditions which must be met by both parties when a loss occurs, otherwise the contract would not be legally enforceable. for example: if the policy owner is past due on his payments and the insured dies. The insurance company does not have to pay the death benefit because a condition was not met.

implied authority

is authority not expressed or written into the agent contract, but which the agent is assumed to have in order to transact the business of insurance for the principal. Comes from the express authority, since not every single detail of an agents authority can be spelled out in the agents written contract.

concealment

legal term for the intentional withholding of information, which is crucial in making a decision. Withholding of information by the applicant that results in an inaccurate underwriting decision and can void the policy.

value or indemnity

life insurance is a VALUED contact, which pays a stated amount, regardless of the actual loss incurred. Health insurance is an INDEMNITY contract. It only pays the amount equal to the loss. With health insurance you are not allowed to make profit.

insurable interest

most important aspect for establishing a legal insurance contract. The policy owner must face the possibility of losing money or something of value when a loss happens.

competent parties

one of the four essential elements to an insurance contract. All parties must be of legal competence. Meaning they must be of legal age, mentally capable of understanding the terms, and not under the influence of drugs or alcohol.

offer and acceptance

one of the four essential elements to an insurance contract. an offer is made when applicants submits an application for insurance to the insurance company. The offer is then accepted by the insurance companies underwriters after its been approved.

representation

statements believed to be true, to the best of one's knowledge, but they are not guaranteed to be true for insurance purposes. Answers the applicant gives the insurance company based off presented questions. Misrepresentation could void the contract.

adhesion

A take it or leave it agreement between the insurer and the insurance company. No negotiations or changes can be made.

utmost good faith

Implies that there'll be no fraud, misrepresentation or concealment, between the parties as it pertains to insurance policies. Both the insurer and the insurance company must be able to rely on one another for relevant and accurate information.

consideration

one of the four essential elements to an insurance contract. is something of value each party gives to the other. The consideration on the part of the insured is the payment of premium. The consideration on the part of the insurance company is a promise to pay in the event of loss.

personal contract

personal contracts between an individual and an insurance company. Ownership cannot be transferred without the written consent of the insurance company.

parol evidence rule

prevents parties from changing the meaning of a written contract by trying to introduce oral or written statements made before the formation of the contract.

aleatory

describes what insurance contracts are. An unequal exchange of value. The premiums paid by the insured are small in relation to the amount that will be paid by the insurance company, in the even of a loss.

waiver

the act of voluntarily giving up a legal right, claim or privilege.

apparent authority

the appearance or the assumption of authority given based on the actions or words of the principal.

estoppel

the legal process used to prevent a party from reclaiming a right or privilege that was already waived. A legal consequence of the waiver

warranty

are statements that are guaranteed to be true and are a part of the legal contract.

unilateral

the policy under no legally binding promise to pay premiums. However, the insurance company is legally bound to pay losses covered by the policy. Note: if the policy holder does not pay premiums, then the insurance company does have the right to terminate the insurance policy.

Legal Purpose

one of the four essential elements to an insurance contract. an insurance contract must be legal and not against public policy. If an insurance contract has a insurable interest and the insured has provided written consent, it had legal purpose.