Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
32 Cards in this Set
- Front
- Back
Contract |
legally binding agreement creating rights and duties for those who are parties to it. -breached contract, when one party fails to perform its duties without a legal excuse |
|
Voidable contract |
-allows one party the option of breaking the agreement because of an act (breach) or omission by the other party -the party with the right to void the contract may choose to have the contract enforced |
|
Void contract |
-a contract that a court will not enforce because from the beginning it lacks the elements of a valid contract Ex: contract signed by a legally insane person is not valid |
|
Binder |
-temporary contract in property insurance, verbal or written before the formal written policy is issued. Meets all requirements of a legal contract. Temp in nature because it is valid for 30 days or less. -purpose is to provide coverage during the time it takes to process an application. Written binder will state the amount covered, effective date, and parties to the binder. |
|
Conditional Receipt |
-can provide temp coverage, contingent on applicant's ability to present evidence of insurability. Ex: life insurance, evidence of good health must be provided. |
|
Contract valid elements (4) |
1. offer and acceptance 2. consideration 3. capacity 4. legal purpose |
|
Offer and Acceptance |
-offer, proposal to make an exchange, must be reasonably definite& communicated clearly -acceptance, second person agrees to exchange, unconditional, unequivocal, and communicated clearly. -may be oral or in writing. Binder can be both but written is preferred so terms are clearly stated. |
|
Consideration |
-value exchanged b/t 2 parties to the contract -what each party gives the other. -can be tangible or intangible -insurance policy, insurer makes a contingency promise to pay insured. Insurer agrees to pay if covered loss occurs, if it doesn't, insurer not required to pay. -in return, insured also agrees to make premium payments and follow provisions and stipulations in contract |
|
Unilateral contract |
-one party makes an enforceable promise. Insurance policy is a good example. Insured can cancel anytime or stops paying without recourse. Insurer is limited to specific situations before it can cancel. -bilateral contract, both parties make enforceable promises. Insurance is not bilateral |
|
Capacity |
-18 year old is considered end of being minor. If someone younger enters into a contract and minor chooses not to end contract, it can be ratified when minor turns 18. -some states allow older minors, 15 or older to enter into binding agreements for insurance in specific instances. -insurer must also be qualified to enter into contracts, have license to operate in the state where it wants to sell insurance |
|
Legal purpose |
-an end or intention permitted by law -contract with antisocial purpose are not legally enforceable Ex: buying life insurance on a child and claiming to be his/ her parent, then child dies. Insurer would not pay because of false claim of being a parent. Lacks insurable interest-legally recognizable economic relationship |
|
Principles of Indemnity |
-the insured should be restored to the same financial position as before the insureds loss. any departure from this rule should be on the side of undercompensation. -insurers enforce indemnity through insurable interest requirement, actual cash value settlements, operation of subrogation clauses |
|
Exceptions to indemnity rule |
-life insurance -replacement cost insurance -valued insurance |
|
Life insurance |
-economic value of human life cannot be measure before death -cannot be contract of indemnity -one cannot be put in the same financial position because that position cannot be foretold |
|
replacement-cost insurance |
-when insurer promises to pay the amount equal the full cost of replacing or repairing the property w/o deductions or depreciation Ex: if an old building burns down, the insured will be in a better position after replacement. This type of policy is typically used in homeowner's insurance & property insurance. |
|
Valued Insurance Policy |
-exception to rule of indemnity -limit is paid when there is a total loss -value is agreed upon before policy is written. When loss occurs, could be more or less than stated amount but that amount is paid regardless. Usually art or collectibles. |
|
Insurable Interest |
-policyholder is not indemnified and enriched by a loss, which makes getting the policy a gamble. This law was put in place in the 1800s where insurers would try to benefit from murders / fraud. Prohibits insurance to be issued if policyholder lacks interest in the loss. |
|
Property Insurance |
-interest must be shown to exist before benefiting from loss. Legally recognized form of ownership i.e deed, title or demonstrable financial interest. -insurable interest not involving financial ownership includes: bailments, mortgage loans, or other loans where property is pledged as collateral. |
|
Life Insurance |
-Policyowner must show a recognized interest in having the insureds life continue. Interest must be shown when policy is purchased. -a person may purchase as much insurance as s/he would like since s/he has a interest in his own person -husband/wife have an unlimited interest. Anyone else beyond close family must show an interest ie. biz partner, debtors, key employees. |
|
Owner |
-applicant who must show insurable interest at time of application, there must be an adequate relationship to the person being insured. -the party who can enforce the contractual rights i.e. naming beneficiary, assigning policy, taking out loans from insurer, and designating dividend options. |
|
Beneficiary |
-party receiving the funds at the time of the insureds death -must demonstrate insurable interest at time of application -insurer must know there is an adequate relationship between beneficiary and insured. |
|
Actual Cash Value |
-replacement cost at time of loss, less depreciation -used to implement principle of indemnity -insured can only recover amt of loss, even if the insured amount was higher because property was over insured |
|
Replacement Cost |
-$required to rebuild a similar structure meeting the same building code requirements at the time the original structure was built -not the same as fair market value because FMV includes land value. Location is important but not when calculating replacement cost. |
|
Depreciation |
-calculated as percentage # of years in use / useful life of structure Ex: bldg used for 15 yrs expected to have 60 yrs life would be 1/4 depreciated (15/60) and 3/4 undepreciated (45/60) -not the same as accounting concept b/c acct concept is based on purchased price while depreciation for ACV calculation uses #of years in use and useful life of structure. |
|
Functional replacement |
-sometimes insurers do not use ACV in their policy. -old structures also often cannot be rebuilt exactly the same way so insurers provide coverage for replacement with modern construction techniques -Rules behind functional replacement: wallboard substitute plaster wall, Plastic pipes in place of copper, plywood in place of hardwood |
|
Subrogation |
-legal substitution of one person in place of another. -if one person can be held liable for another's debt, then s/he can collect debt on behalf of that person as well -gives insurers the right to collect from a third party after paying its insured claims as in car insurance collision claim -prevents insured from collecting twice for the same loss -prevents negligent parties to escape from their acts |
|
Discharge of Contracts |
contracts can be discharged for the following reasons: -Performance -Condition precedent -Condition subsequent -Rescission -Reformed |
|
Performance |
-in normal course of events, insurance contracts end by performance, each party has done what it agreed to do. -insurer renders payment if loss occurs and stands ready if none occurs. Usually none occurs. Insurer still perform as required by standing ready to pay claim. -insureds discharge by paying their premiums and abiding by contract |
|
Condition Predecent |
-something that must be done by one party to activate the other party's duty to perform Ex: premiums must continue to be paid for continued coverage EX: Prompt notice must be given within 60 days to insurer in case of loss in homeowner's policy. |
|
Condition Subsequent |
-ends an existing duty of immediate performance -for homeowner's policy, insured must contest any denied claims within 12 mos. |
|
Rescission |
-an agreement by both parties to end the contract, all requisites of a contract are required. When both parties mutually agree to relinquish their rights, then rescission was mutual. -if one party feels like s/he was a victim of fraud, it may ask the court the rescind the contract EX: if a smoker lies on life insurance form and dies w/i contestable period, insurer may rescind the contract and only return premiums paid |
|
Reformed |
-if mistakes have been made in a policy, it must be reformed. Policy must be corrected so that the other party is not taken advantage of. |