TNPSC MATERIAL
Legal Elements of Insurance.
Tamilnadu Government Material for Aspirants !!
Legal Elements of Insurance.
Elements of a Contract As we've said, an insurance policy is a legally binding contract between two parties. One party is the insured person or organization and the other is the insurance company. An insurance policy describes the rights and obligations of both parties.
It is important to understand the following legal terms that relate to insurance.
Agreement. When an offer made by one party has been accepted by the other, with mutual understanding by both, an agreement exists.
Legal Purpose. For a contract to be valid it must not be for an illegal subject or contrary to public policy. Insurance does not cover intentional loss or criminal acts for this reason.
Consideration. The exchange of values on which a contract is based. In insurance, the consideration offered by the insured is usually the premium and the statements contained in the application. The consideration offered by the insurer is the promise to pay in accordance with the terms of the contract.
Competency. This is one of the elements that must be present in order to have a legal contract. It relates to the fitness or ability of either of the parties to the contract. An example of incompetency would be a mental incapacity.
Legal Contract Principles Important to Insurance
Aleatory Contract. A contract in which the number of dollars to be given up by each party is not equal. Insurance contracts are of this type, as the policyholder pays a premium and may collect nothing from the insurer or may collect a great deal more than the amount of the premium if a loss occurs.
Contract of Adhesion. This is a characteristic of a unilateral contract which is offered on a "take it or leave it" basis. Most insurance policies are contracts of "adhesion," because the terms are drawn up by the insurer and the insured simply "adheres." For this reason ambiguous provisions are often interpreted by courts in favor of the insured.
Conditional Contract. There are conditions which must be met by both parties before the contract is legally enforceable. In an insurance contract conditions for both the insurer and insured are spelled out in the policy form.
Personal. A personal contract is between two specific parties and gene transferred to other parties, unless under conditions specified in the contract. Insurance policies are usually not transferable unless the insurer agrees to do so.
Unilateral Contract. A contract such as an insurance policy in which only one party to the contract, the insurer, makes any enforceable promise. The insured does not make a promise but pays a premium, which constitutes the insured's part of the consideration.
Utmost Good Faith. Acting in fairness and equity with a sincere belief that the act is not unlawful or harmful to others. The insurance contract requires that each party is entitled to rely upon the representations of the other without attempts to conceal or deceive.
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