Elements of an Insurance Contract

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  • 0:04 Insurance Contract
  • 0:45 Insurance Contract Elements
  • 2:05 When a Contract Is Invalid
  • 2:28 Lesson Summary
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Lesson Transcript
Instructor: Elisha Madison

Elisha is a writer, editor, and aspiring novelist. She has a Master's degree in Ancient Celtic History & Mythology and another Masters in Museum Studies.

Insurance contracts can be confusing, whether due to length or strange verbiage. This is an explanation of the elements in a contract and gives a good idea of what you will see.

Insurance Contract

Insurance contracts can be created for all kinds of insurance: life, auto, home, or disability, just to name a few. These documents are used to set out the rules and regulations that state certain conditions, the guidelines that must be met, and anything that is excluded from the insurance. These guidelines must be met by both parties: the insurer and insured. The insurer is essentially guaranteeing that they will pay, in the case of need, for a set amount of money promised by the insured. These guidelines assure that every party is safe and protected if the insurance is used. Each contract is unique to its insurance; however, there are elements that are standard.

Insurance Contract Elements

There are many components of a contract, and they will have different titles and names depending on the insurance and the service being provided; however, let's take a closer look at this list that covers what each section should contain and could be called:

  • Offer - This is where the insurer will offer a specific service, such as paying for your home and belongings in case of a flood

  • Acceptance or agreement - The agreement is the section where the insured agrees to the offer by paying a certain amount to secure the service

  • Competent parties and components - This is the list of what is being insured and caveats on what will not be insured, much like a list of cars that are being insured and have been notated and paid for, while other non-listed vehicles will explicitly be uncovered

  • Consideration - This is where the legal wording will come into play; all the lawful requirements needed to be met by both parties will be here, making them responsible for what they promise

  • Legal relationship - This follows the consideration section because it is a section mostly used for signatures and guidelines for the requirements by every party agreeing to the contract, and then the consequences if a party does not hold up their end of the bargain. Additionally, this is the section where you have to agree that you are a responsible party that can enter into a legally binding contract, which usually focuses on age and sometimes credit concerns.

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