Obviously, the contents of an insurance contract depends on the type of policy, what the insurance applicant wants, and how much he is willing to pay.
The details of insurance policies are covered in Standard Insurance Policies. This article covers what is required of valid insurance contracts , since only valid contracts are legally enforceable.
Insurance contracts have an additional requirement that they be in legal form. Insurance contracts are regulated by state law, so insurance contracts must comply with these requirements. The state may stipulate that only certain forms may be used for certain types of insurance or that the contract must have certain provisions.
Additionally, contracts must be approved by the state insurance department before they can be used, to ensure they comply with regulations. If a contract lacks any of these essential elements, then it is a void contract that will not be enforced by any court. For instance, most contracts signed by a minor are void contracts because minors are not legally competent. A voidable contract can be nullified by a party if the other party breaches the contract, or because material information was false or omitted in the contract.
The party with the right to void can also choose to enforce it, instead. For instance, insurance companies can often void a contract because the applicant provided false information on the application. Thus, if someone was in an auto accident, and that person previously filled out the insurance application stating that he had no speeding tickets, when, in fact, he had, then the insurance company can void the contract and not pay the claim.
Although most contracts can be oral, most are written, especially insurance contracts, because of their complexity. In insurance, the offer is typically initiated by the insurance applicant through the services of an insurance agent , who must have the authority to represent the insurance company, by filling out an application for insurance. Sometimes the application for insurance can be filed directly with the insurance company through its website.
How the offer is accepted will depend on whether the insurance is for property, liability, or life insurance. For property and liability insurance, the offer is the application for insurance and the payment of the 1 st premium, or the promise to do so. In most personal lines of insurance, the agent can accept the offer for the company, binding the company to the contract.
A binder is a temporary contract that can be oral or written that binds the insurance company to the contract immediately until it has a chance to examine the application, and issue a formal policy.
Through the binder, the insurance becomes effective immediately. Most binders are written and include general information, such as the type and amount of insurance, the name of the parties, and the time during which the binder is effective. However, once a formal policy is issued, then the terms of the policy override the binder. This is particularly true for oral binders, for once a written policy is issued, the parole evidence rule makes the written policy determinative where there is any conflict between the oral and written agreement.
If a mistake was made in the policy, such as mistyping the wrong policy value, then the contract can be reformed by correcting the mistake to prevent unjust enrichment of either party. However, some agents cannot bind the insurance company, in which case, the insurance company must receive and accept the application, or it can reject it.
The insurance is not effective until the company accepts the application. In life insurance , the agent never has the power to bind the company. The applicant fills out the application and pays the 1 st premium. The applicant is then given a conditional premium receipt — the most common type of receipt is the insurability premium receipt. If the applicant is insurable according to the company's underwriting standards , then the life insurance becomes effective from the date of the application, or from the date of the medical examination.
However, if the premium is not paid when the application is filled out, then the insurance will not become effective until the policy is delivered and the premium is paid, and the applicant is in good health when the policy is delivered. Some companies require that the applicant not receive any medical treatment between the application and the delivery of the policy; otherwise the policy will not become effective.
Thus, a conditional receipt is like a binder, but differs from it because coverage is conditional upon the health of the applicant, occupation, and other factors. A binder does not require the payment of a premium to become effective — often the insurer needs the time to determine what the premium will be. While the insurance applicant is considered the one making the offer, the insurance company dictates the terms of the contracts. The Court's decision turned on the differences that separate insurance policies from insurance contracts as recognized by the statutory definitions of "contract" and "policy" in the Insurance Act , RSO , c.
Without an added contractual relationship, a policy is merely a recitation of terms and conditions that does not attach to a particular person or item. In contrast, an insurance contract creates contractual obligations between parties.
Like any contract, there must be an offer, acceptance, and agreement on all material terms. Premiums, the nature and duration of risks, and the extent of liability, are all material terms in an insurance contract. The motion judged interpreted the Master Policy as if it constituted a binding agreement between Trisura and all members who had been issued certificates. Since both Mr. Van Huizen and Mr. The Court explained that the Master Policy did not constitute a binding agreement on its own and merely set out the terms of the professional liability insurance being offered to the AIC members.
Each AIC member who desired coverage must apply and, provided the member and the insurer come to an agreement on the remaining essential terms e. Thus, the certificates issued to Mr. Barkley were evidence of separate insurance contracts. In light of this, the individual certificate issued to Mr.
Van Huizen should have been used to determine whether Trisura had a duty to defend. Since the motion judge erred by finding a duty to defend based solely on the Master Policy, the Court reconsidered the issue based on an interpretation of the true contractual relationship between the parties. As Mr. In other words, coverage was only available for claims against Van Huizen respecting Mr.
They could also be issued to add specific conditions to the policy. Co-insurance refers to the sharing of insurance by two or more insurance companies in an agreed proportion. For the insurance of a large shopping mall, for example, the risk is very high. Therefore, the insurance company may choose to involve two or more insurers to share the risk. Coinsurance can also exist between you and your insurance company. This provision is quite popular in medical insurance, in which you and the insurance company decide to share the covered costs in the ratio of Reinsurance occurs when your insurer "sells" some of your coverage to another insurance company.
Your offer is accepted by the Insurance Company A. This practice is known as reinsurance. Generally, reinsurance is practiced to a much greater extent by general insurers than life insurers. When applying for insurance, you will find a huge range of insurance products available in the market. If you have an insurance advisor or broker, they can shop around and make sure that you are getting adequate insurance coverage for your money. Even so, a little understanding of insurance contracts can go a long way in making sure that your advisor's recommendations are on track.
Furthermore, there may be times when your claim is canceled because you didn't pay attention to certain information requested by your insurance company. In this case, a lack of knowledge and carelessness can cost you a lot. Go through your insurer's policy features instead of signing them without delving into the fine print. If you understand what you're reading, you'll be able to ensure that the insurance product that you are signing up for will cover you when you need it most.
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Table of Contents Expand. Insurance Contract Essentials. Contract Values. Insurable Interest. Principle of Subrogation. The Doctrine of Good Faith. Other Policy Aspects. The Bottom Line. Key Takeaways Life insurance contracts spell out the terms of your policy, including what's covered and what's not as well as what you'll pay. A life insurance contract can contain terminology and jargon that you may not be immediately familiar with.
It's important to read through an insurance contract carefully before signing so you understand what you're agreeing to. You should also review the contract to check for any errors that may affect your coverage or costs. Important You may not want to sign an insurance contract if you don't fully understand the terms without first consulting an insurance expert. Tip Using a life insurance calculator can help you determine what type and what amount of coverage you need.
Tip In life insurance contracts, someone with an insurable interest can include your spouse, your children or grandchildren, a special needs adult who is also a dependent or aging parents.
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