Unit 2 Flashcards
(19 cards)
5 components of a valid, legal contract
Consideration
Legal Purpose
Offer
Acceptance
Competent Parties
Consideration
each party must have something valuable to the other; money and statements made on the application
Legal Purpose
to be valid, a contract must be for a legal purpose and does not violate the law
Offer
proposal made by one party; an individual who submits an application with payment is making an offer to become insured
Acceptance
acceptance of an offer must be unconditional and unqualified
Counteroffer
made by insurer; agrees to issue policy buy with higher premium or certain restrictions
Competent parties
legal age, mentally sane, sober
Insurance policies are contracts of _______, meaning…
adhesion
provisions are written by only one party, and the other (the insured) must adhere to the terms. If ambiguous, court will take the side of the insured
aleatory contract
the value received from the contract by each party is unequal because the insurer’s performance depends on the uncertainty of loss
utmost good faith
each party is entitled to a reasonable expectation that the other will act honestly
unilateral
one-sided contract; insured may cancel contract at any time but the insurer cannot abandon its responsibility
personal
insurance contracts cannot be transferred/changed to anyone else
conditional contract
require certain conditions to be filled in order for performance to be enforced; insured must pay the premium and file a claim if loss occurs
indemnity
contract is intended to restore insured to prior financial state, no more or less
representation vs
misrepresentation vs
material representation
representation – statements applicant believes to be true
misrepresentation – actually false but would not affect company’s decision
material misrepresentation – false information as a determining factor; voids application
warranty
a statement guaranteed to be true and can be relied on – can void a contract
(ex. a jewelry store owner promising to have a burglar alarm system but does not)
concealment
failure to disclose information; if intentional and information is material (important), coverage can be voided
fraud
intentional act to cheat another
waiver and estoppel
waiver – intentional and voluntary giving up of a known right
estoppel – once a waiver has been created it cannot be changed
