Consideration
Something that has value in the eyes of the law in which the promisee receives something in return for a promise. Payment of a premium.
Legal Purpose
An insurance contract must not be written to cover an illegal activity or immoral purposes.
Offer and Acceptance
An applicant completes an application for coverage and the insurance company accepts it and returns a policy or a binder.
Aleatory Contract
When a contract is contingent on an uncertain loss, the policy is issued and has to be accepted.
Contract of Adhesion
Where one party has greater power over the other party in drafting a contract. The provisions of the contract are prepared by one party.
Unilateral Contract
Only the insurance company is legally bound. The insured has agreed to pay a premium in exchange for the insurer's promise to act in the future.
Conditional Contract
Promises action in the event of a future occurrence.
Principle of Indemnity
The contract must restore the insured to the financial position previously held before the loss.
Reasonable Expectations
States that a policy includes coverages that an average person would reasonably expect it to include, regardless of what the policy actually provides.
Fraud
An intentional act designed to deceive and induce another party to part with something of value.
Indemnity
Assumes that a claimant should only be restored to the approximate financial condition that existed prior to the loss, no better or worse.
Warranty
Something that becomes part of the contract and is a statement that is considered to be a guarantee 100% of the time.
Concealment
The failure of the insured to reveal relevant facts known to the insured when applying for insurance.
Misrepresentation
Untrue statements made by the insured, usually at the time when the application is made.
Declarations
Includes the identity and address of the named insured, the policy term or period, the amount of insurance or limits of liability, policy premium, and any applicable deductibles.
Insuring Agreement
Describes the covered perils, or risks assumed, or nature of coverage.
Conditions
Set provisions, rules of conduct, duties and obligations for the parties.
Appraisal
Dispute involving a property claim.
Arbitration
Dispute involving liability.
Binder
Temporary evidence that coverage is in effect until the policy is issued. Can be either written or oral.
Subrogation Clause
Used when the insurer has paid a covered claim on behalf of the insured that is caused by another party.
Named Peril
Lists the specific perils to be covered.
Agreed Value
Method used when the true value of a loss cannot accurately be determined.
Tort
A civil wrong that violates the rights of others.
Comparative Negligence
Law that allows an injured party to collect from another party for a loss, even when the injured party contributed to his or her own loss.
Assumption of Risk
When a person knowingly exposes themselves to danger or injury.
Statute of Limitations
How long one has to file a suit.
Functional Replacement Cost
As reasonably close to the replacement of the lost or damaged item.
Staff/Independent Adjuster
Adjuster that represents the company or insurer.
Public Adjuster
Represents the insured.
Property and Casualty Guaranty Plan
Used to cover the losses when an insurer is insolvent or bankrupt.
Endorsements
May alter the contents of the declarations and insuring agreement. Used to add, delete, or change any of the policy parts.
Excess Insurance
A policy that pays benefits only when coverage under applicable insurance policies has been exhausted.
Stated Amount
An agreed amount of insurance which is shown on the policy and that will be paid in the event of a total loss regardless of the actual cash value of the property.
Executory Contract
Both sides must perform certain acts to make the contract legally enforceable.
Law of Large Numbers
A statistical concept that relates to probability.
Competent Parties
No one under the age of 18, under the influence or mental in capacity.
Waiver
The voluntary or intentional relinquishment of a known right.
Estoppel
If someone intentionally or unintentionally creates the impression that a certain fact exists, and an innocent party relies on that impression and is damaged as a result, the guilty party may be legally prohibited from asserting that the fact does not exi