Module 1, Lesson 3

Question 1

Contract

Answer 1

A legally enforceable agreement between two or more parties.

Question 2

Lapse

Answer 2

The termination of an insurance policy for nonpayment of premium.

Question 3

Unilateral Contract

Answer 3

A contract in which only one of the parties makes a legally enforceable promise when entering into the contract.

Question 4

Bilateral Contract

Answer 4

A contract in which both parties make legally enforceable promises when they enter into the contract.

Question 5

Commutative Contract

Answer 5

A contract under which the parties specify in advance the values that they will exchange; moreover, the parties generally exchange items or services that they think are of relatively equal value.

Question 6

Aleatory Contract

Answer 6

A contract under which one party provides something of value to another party in exchange for a conditional promise.

Question 7

Conditional Promise

Answer 7

A promise to perform a stated act if a specified, uncertain event occurs; if the event does not occur, the promise will not be performed.

Question 8

Bargaining Contract

Answer 8

A contract in which both parties, as equals, set the terms and conditions of the contract.

Question 9

Contract of Adhesion

Answer 9

A contract that one party prepares and that the other party must accept or reject as a whole, generally without any bargaining between the parties to the agreement.

Question 10

Informal Contract

Answer 10

A contract that is enforceable because the parties to the contract met requirements concerning the substance of the agreement rather than requirements concerning the form of the agreement.

Question 11

Formal Contract

Answer 11

A contract that is enforceable because the parties met certain formalities concerning the form of the agreement.

Question 12

Valid Contract

Answer 12

A contract that is enforceable at law because it satisfies all legal requirements.

Question 13

Void

Answer 13

Something that was never valid. A void contract is one that was never enforceable at law.

Question 14

Voidable Contract

Answer 14

A contract in which a party has the right to avoid obligations under the contract without incurring legal liability.

Question 15

Mutual Assent

Answer 15

A meeting of the minds about the terms of an agreement.

Question 16

Consideration

Answer 16

A requirement for the formation of a valid contract that is met when each party gives or promises something that is of value to the other party.

Question 17

Lawful Purpose

Answer 17

No contract can be made for a purpose that is illegal or against the public interest.

Question 18

Contractual Capacity

Answer 18

The legal capacity to make a contract.

Question 19

Initial Premium

Answer 19

The first premium paid for an insurance policy.

Question 20

Applicant’s Consideration

Answer 20

If the applicant had not paid the initial premium, she would not have provided consideration and no contract would exist.

Question 21

Renewable Premiums

Answer 21

Renewal premiums payable to keep the policy in force are not consideration for the formation of the contract but a condition necessary for the continuation of the contract.

Question 22

Legally Adequate Consideration

Answer 22

The rules of contract law don’t require the parties to exchange equal consideration. Whatever is of value to the parties generally is considered to be legally adequate consideration.

Question 23

Insurable interest

Answer 23

The interest that an insurance policyowner has in the risk that is insured. A policyowner has an insurable interest if she is likely to suffer a genuine loss or detriment should the event insured against occur.