3 - (Vocab) Legal Concepts of the Insurance Contract

Indemnity Contract

Health Insurance.It only pays the amount equal to the loss. Not allowed to make a profit.

Parol Evidence Rule

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

Representation

Statements are believed to be true, to the best of ones knowledge, but are not guaranteed to be true for insurance purposes. Answers applicant for insurance gives to questions on Insurance application Untrue statements are considered misrepresentations and could void the contract.

Warranties

Statements guaranteed to be true and are part of legal contract.

Apparent Authority

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

Waiver

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

Implied Authority

Authority not expressed or written into a the agent contract, but which the agent is assumed to have in order to transact the business of insurance for the principal

Concealment

Legal term. Intentional withholding of information, which is crucial in making a decision. With insurance, it is a withholding of info by the applicant that results in an inaccurate underwriting decision and can void the policy.

Agent

Licensed insurance producer, whose been appointed to represent an insurance company. Authority to perform acts on behalf of the insurance company. Acting on behalf of insurance company, aka Principal.

Valued contract

Life Insurance. pays a stated amount, regardless of the actual loss incurred.

Offer and Acceptance

Element of Legally binding contract. An offer is made when the applicant submits an application for insurance to the insurance company. The offer is accepted after it has been approved by the insurance company's underwriters.

Legal Purpose

Element of legally bind contract. Must be legal. Not against public policy. An insurance contract has an insurable interest and the written insured has provided written consent.

Competent Parties

Element of legally binding contract. Must be of legal age, mentally capable of understanding the terms, and not under the influence of drugs or alcohol.

Consideration

Element of legally binding contract. Something of values that each party gives to the other. The payment of premium is it on the part of the insured. The promise to pay in the event of loss is it on the part of the insurance company.

Personal Contract

Insurance contracts between and individual and the insurance company, and cannot transfer ownership without the insurance company's written consent.

Conditional Contract

Insurance contracts. Certain conditions must be met by all parties when a loss occurs, otherwise the contract would not be legally enforceable.

Insurance Contract

Insurance policies are legal contracts. Contract law defines a contract as a legally binding agreement between two or more parties, where a promises of benefits is exchanged for consideration. In order for an insurance contract to be legally binding it must have 4 essential elements: 1) Offer and Acceptance 2) Consideration 3)Legal Purpose 4)Competent Parties

Insurable Interest

Policy owner must face the possibility of losing money or something of value when a loss happens. Insurable interest only needs to exist at the time of the original application.

Adhesion

Special feature of insurance contract. AKA "take it or leave it" agreement. They are prepared by only one party, the insurance company. Accepted or rejected by the other party, the applicant, with no negotiations or changes

Alleatory

Special feature of insurance contract. Not an equal exchange of value. Premiums paid are less than amount that will be paid by the insurance company, in the event of loss.

Unilateral

Special feature of insurance contract. One sided agreement. Only one party, insurance company, is legally bound to do anything. Insurance company is legally bound to pay losses covered by the policy.

Express Authority

The authority granted to the agent by the principal to the agent by the principal as written in the agency contract.

Estoppel

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

Utmost Good Faith

There will be no fraud, misrepresentation or concealment, between the parties as it pertains to insurance policies.