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.