Requirements of an Insurance Contract

An insurance policy is based on the law of contracts. To be legally enforceable an insurance contract must meet four basic requirements; offer and acceptance, consideration, competent parties and legal purpose.

Offer and Acceptance; The first requirement of a binding insurance contract is that there must be an offer and acceptance of its terms. In most cases the applicant for insurance makes the offer, and the company accepts or rejects the offer. An agent merely solicits or invites the prospective insured to make a offer. The requirement of offer and acceptance can be examined in greater detail by making a careful distinction between property and casualty insurance and life insurance.

In property and casualty insurance, the offer and acceptance can be oral or written. In the absence of specific legislation to the contrary, oral insurance contracts are valid. As a practical matter, most property and casualty insurance contracts are in written form. The applicant for insurance fills out the application and pays the first premium.

This steps constitutes the offer. The agent then accepts the offer on behalf of the insurance company. In property and casualty insurance, agents typically have the power to bind their companies through use of a blinder. A blinder is a temporary contract for insurance and can be either written or oral. The blinder obligates the company immediately prior to receipt of the application and insurance of the policy.

In life insurance, the procedures followed are different. A life insurance agent does not have the power to bind the insurer. Therefore, the application for life insurance is always in writing and the application must be approved by the insurer before the life insurance is in force. The usual procedure is for the applicant to fill out the application and pay the first premium. A conditional premium receipt is then given to the applicant. The most common conditional receipt is the insurance premium receipt is then given to the applicant. If the applicant is found insurance according the the Insurer’s normal underwriting standards the life insurance becomes effective as of the date of the application.

Some insurability receipts make the life insurance effective on the date of the application or the date of the medical exam, whichever is later. However, if the applicant for life insurance does not pay the first premium when the application is filled out, a different set of rules applies. Before the life insurance is in force, the policy must be issued and delivered to the applicant, the first premium must be paid and the applicant must be in good health when the policy is delivered.

Insurers also require that there must be no interim medical treatment between submission of the applicant and delivery to the policy, These requirements are considered to be ‘conditions precedent’ in other words, they must be fulfilled before the life insurance is in force.

Consideration; The second requirement of a valid insurance contract is consideration- the value that each party gives to the other. The insured’s consideration is payment of the premium plus an agreement to abide by the conditions specified in the policy. The insurer’s consideration is the promise to do certain things as specified in the contract.

This promise can include paying for loss from an insured peril, providing certain services, such as loss prevention and safety services or defending the insured in a liability lawsuit.

Thank you for reading our article. If you need more information related to insurance, Please visit our website.

Our website link;

An insurance policy is based on the law of contracts. To be legally enforceable an insurance contract must meet four basic requirements; offer and acceptance, consideration, competent parties and legal purpose.

Offer and Acceptance; The first requirement of a binding insurance contract is that there must be an offer and acceptance of its terms. In most cases the applicant for insurance makes the offer, and the company accepts or rejects the offer. An agent merely solicits or invites the prospective insured to make a offer. The requirement of offer and acceptance can be examined in greater detail by making a careful distinction between property and casualty insurance and life insurance.

In property and casualty insurance, the offer and acceptance can be oral or written. In the absence of specific legislation to the contrary, oral insurance contracts are valid. As a practical matter, most property and casualty insurance contracts are in written form. The applicant for insurance fills out the application and pays the first premium.

This steps constitutes the offer. The agent then accepts the offer on behalf of the insurance company. In property and casualty insurance, agents typically have the power to bind their companies through use of a blinder. A blinder is a temporary contract for insurance and can be either written or oral. The blinder obligates the company immediately prior to receipt of the application and insurance of the policy.

In life insurance, the procedures followed are different. A life insurance agent does not have the power to bind the insurer. Therefore, the application for life insurance is always in writing and the application must be approved by the insurer before the life insurance is in force. The usual procedure is for the applicant to fill out the application and pay the first premium. A conditional premium receipt is then given to the applicant. The most common conditional receipt is the insurance premium receipt is then given to the applicant. If the applicant is found insurance according the the Insurer’s normal underwriting standards the life insurance becomes effective as of the date of the application.

Some insurability receipts make the life insurance effective on the date of the application or the date of the medical exam, whichever is later. However, if the applicant for life insurance does not pay the first premium when the application is filled out, a different set of rules applies. Before the life insurance is in force, the policy must be issued and delivered to the applicant, the first premium must be paid and the applicant must be in good health when the policy is delivered.

Insurers also require that there must be no interim medical treatment between submission of the applicant and delivery to the policy, These requirements are considered to be ‘conditions precedent’ in other words, they must be fulfilled before the life insurance is in force.

Consideration; The second requirement of a valid insurance contract is consideration- the value that each party gives to the other. The insured’s consideration is payment of the premium plus an agreement to abide by the conditions specified in the policy. The insurer’s consideration is the promise to do certain things as specified in the contract.

This promise can include paying for loss from an insured peril, providing certain services, such as loss prevention and safety services or defending the insured in a liability lawsuit.

Thank you for reading our article. If you need more information related to insurance, Please visit our website.

Our website link; https://insurance-pedia.com

Spread the love

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top