Four Elements of a Legal Contract
2. Legal Purpose
All parties to a contract must enter it for a legal purpose; public policy cannot be violated by a legal contract. All parties to a contract must enter it in good faith.
1. Competent Parties
All parties to a contract; Insurer and Insured must have legal capacity to enter into a contract.
3. Agreement
One party must make and communicate an offer to the other party and the second party must accept that offer.
4. Consideration
Something of value is exchanged; the exchange of an act for a promise. The consideration made by the applicant is the premium payment. The consideration made by the insurer is its promise to pay for covered losses.
Acceptance
The acceptance of an insurance contract takes place when the insurance company agrees to issue insurance. A counteroffer by the insurance company is not acceptance until the applicant accepts the counteroffer.
Minors
The insurer may be held responsible for its obligations, however, in most cases a minor cannot enter into a contract. Exceptions do exist, such as for the purchase of auto insurance. The mentally incompetent or incapacitated. Persons under influence of drugs or alcohol.
Offer
The offer for entering an insurance contract is the application submitted by the applicant.