Insurance Contract Elements
An insurance contract is the backbone of every established business’s operation plan, offering reassurance of financial stability should the worst-case scenario come to fruition. Understanding the elements of an insurance contract can seem daunting when it applies to a business versus a person. Below is a brief guide to the components of an insurance contract that make it legally binding for both parties.
Offer and Acceptance for an Insurance Contract
When you seek an insurance policy, you fill out an application that is legally known as an offer. Meanwhile, acceptance occurs when the insurance company formally issues the policy to the policy holder.
Legal Consideration
Next, legal consideration refers to the dollar value of the premiums you agree to pay and the dollar limit of the coverage the insurance company provides in return. Also, this pertains to home and auto insurance as well as commercial insurance policies.
Competent Parties
Also, insurance contracts are only valid if both parties are of sound mind and body, both parties are at least the legal age of majority and the insurance company is licensed in your state.
Free Consent
Next, both parties in any insurance contract must enter into the contract of their own volition, with no fraud, misrepresentation, intimidation or coercion involved.
Legal Purpose
For the most part, the insurance contract must adhere to all state-specific laws that apply to the contract and cover only legal activities.
Insurable Interest in an Insurance Contract
Also, you have an insurable interest when you benefit financially from whatever is being insured (and you cannot get coverage for something in which you have no insurable interest).
Utmost Good Faith
This is very important it means that both parties have acted without any type of deception, omission or misrepresentation.
Material Facts
Next, the material facts are those things the insurance company needs to know in order to insure your business correctly. Also, it is very important to tell your insurance agent everything about your business so they may insure it correctly.
Full and True Disclosure in the Insurance Contract
In an insurance contract both parties are required to completely disclose all material facts pertinent to the insurance policy.
Principle of Indemnity.
The insurance company will compensate you with a cash settlement if a covered loss occurs.
Doctrine of Subrogation
This says that the insurance company can pursue reimbursement from a third party that caused the covered insurance loss.
Warranties
Warranties are the promises specified in an insurance contract, such as conditions that can trigger a claim and the actions that will be taken by the insurance company as a result of the claim.
Conditions
Conditions are what determines whether a claim will be paid. Also, they include you paying the policy premiums, notifying the insurance company in a timely manner and such if you have an insurance claim.
Limitations
Meanwhile, limitations are the parameters of the insurance coverage, such as maximum amounts that will be paid for a specific type of loss. This could be an auto insurance loss or a business auto insurance loss.
As you might have gathered, insurance contracts are complex legal documents, and it’s best to have assistance when entering into one. Please call or email us today to get help with your commercial insurance coverage.