Chapter 2: The Insurance Contract

What are the characteristics of an insurance contract?

Competent parties, Legal purpose, Offer and acceptance and consideration

What is offer and acceptance in a contract?

A contract must involve two parties: one who makes an offer and another who accepts the offer; also called agreement.

Contract

A legal agreement between two competent parties that promise a certain performance in exchange for a certain condition.

What role does a competent party include in an insurance contract?

States that for a contract to be valid, it must be made between parties who are considered competent under the law

What role does consideration have in an insurance contract?

The consideration that the insured gives is the premium payment; the consideration that the insurer gives the promise to pay for certain losses suffered by the insured.

Personal Contract

This is one of the characteristic of an insurance contract. Definition; An insurance contract insures a person, not property.

Contract of utmost good faith

A characteristic of insurance contracts meaning that the insurance company must be able to rely on the honesty and cooperation of the insured, and the insured must rely on the company to fulfill its obligations.

Conditional Contract

A contract that contains a number of conditions that both parties must comply with; an insurance policy is a conditional contract.

Aleatory Contract

A contract that is contingent on an uncertain event (a loss); an insurance policy is an aleatory contract.

Adhesion Contract

A contract where one party has more power than the other party in drafting the contract; an insurance policy us an adhesion contract -the insurer is the one with more power.

Unilateral Contract

A type of contract that is one sided; an insurance policy is one sided because only the insurance company is legally bound to perform its part of the agreement.

What role does a legal purpose have in an insurance contract?

Contracts are only enforceable if they are not obviously illegal, immoral, or against the public good.

Indemnity

Principle of insurance that provides that when a loss occurs, the insured should be restored to the approximate financial condition he occupied before the loss occurred, no better or no worse.