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FIL 250 Chapter 7
Basics of insurance contracts
| Question | Answer |
|---|---|
| What is a contract of adhesion? | when a party of a contract (such as the insured) has no input into contract language and must accept the entire contract with all of its terms and conditions. if ambiguous, courts often rule against the writer of contracts of adhesion (the insurer) |
| What is the difference between a commutative and an aleatory contract? | Unlike a commutative contracts in which dollar values exchanged by both parties are equal, an aleatory contract is one in which specific dollar values exchanged may not be equal |
| In insurance markets, what is a binder? | authorization of coverage by an agent given before the company has formally approved a policy. the binder provides evidence that the insurance is in force |
| What is the broad evidence rule? | one method for determining the actual cash value which should include all relevant factors an expert would use in determining the value of the property |
| In the context of insurance, what is concealment? | deliberate failure of an insurance applicant to reveal a material fact to the insurer |
| In the context of insurance, what is a representation? | a statement made by an applicant for insurance, for example, occupation, state of health, and family history |
| What is a warranty? | statement of fact or a promise made by a party which is part of the contract and which must be 100% true if the insurer is to be liable under the contract |
| What is a conditional contract? | A contract with provisions that qualify or place limits on the insurer’s promise to perform |
| What is a material misrepresentation? | When a representation is made by an insurance applicant that is knowingly false. It is material if the insurer knew the facts, the contract terms would be altered (e.g., higher premium or rejection) |
| In the context of contracting, what is an assignment? | transfer of legal rights of a contract to another party |
| What is the principle of indemnity? | loss payment should bring the policyholder's financial position back to where it was before a loss occurred. the insurer should not pay MORE than the amount of loss so the policyholder does not profit from insurance |
| In the context of insurance, what is the end result of the principle of utmost good faith? | A higher degree of honesty is imposed on both parties to an insurance contract than what is imposed on parties to other contracts |
| What is subrogation? | upon paying for a loss, the insurer receives the legal rights of the policyholder to recover from a negligent third party |
| What is a unilateral contract? | one where only one party makes a legally enforceable promise |
| What is a bilateral contract? | one where both parties make a legally enforceable promise |
| What is a valued policy? | Policy that pays the face amount of insurance regardless of actual cash value if a total loss occurs (e.g., life insurance) |
| What are valued policy laws? | Laws requiring payment to an insured of the face amount of insurance if a total loss to real property occurs from a peril specified in the law. This policy limit may exceed the actual amount of loss. |
| In an insurance policy, what is the declarations page (decs page)? | contains unique information about the insurance contract including the insured’s name, address, property to be insured, policy limits, policy period, and premium |
| What is the insuring agreement? | that part of an insurance contract that states the promises of the insurer. specifically it describe the circumstances under which the insurer makes a loss payment |
| What is an endorsement (or rider)? | written provisions that add to, delete or modify the provisions in the original contract |
| In the context of an insurance policy, what are exclusions? | provisions in an insurance contract that list perils, losses, and property that are explicitly not covered |
| In the context of an insurance policy, what are conditions? | provisions inserted in an insurance contract that qualify or place limits on the insurer’s promise to perform |
| In the context of an insurance policy, what does the acronym "DICE" stand for? | these are the major sections of an insurance contract: Declarations, insuring agreement, conditions, and exclusions |
| What is the difference between monoline and multiline policies? | a monoline insurance policy includes only a single type of insurance while a multiline (or package) policy contains more than one type of insurance in the same policy. e.g., HO and personal auto includes both property insurance and liability coverage |
| What is the difference between a self-contained policy and a modular policy? | a self-contained policy has all necessary contract provisions in a singular document. A modular policy must combine several separate documents to complete the policy (such as combining coverage forms/insuring agreements with a conditions form) |
| What are some reasons for subrogation? | prevent the insured from collecting twice, hold negligent party responsible for their actions, keep insurance rates low |
| What are the requirements of any contract? | offer/acceptance, consideration, legally competent parties, legal purpose |
| What are some reasons for exclusions in insurance contracts? | some perils are not insurable, assist in moral/morale hazard, other policies are better designed for coverage, coverage not needed by typical insureds, specialized underwriting is required, keep premiums reasonable |
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