RMIN Note 5 - Insurance Contracts 4 Legal characteristics...

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Insurance Contracts 4 Legal characteristics of insurance contracts: 1 Aleatory contracts: values exchanged may not be equal, and they depend on chance 2 Unilateral contract: only one party (insurer) makes a legally enforceable promise a The insurer can’t make the insured do anything, but the insured can make the insurer do something b Should they breach the contract, the insured can sue the insurer for bad faith 3 Conditional contract: insurer’s obligation to pay depends on whether insured has complied with the policy a Ex. Insurer requires the notice of loss within 30 days b Make efforts to prevent further loss if safe and reasonable to do so; if not, then the insurer may not pay for the loss 4 Contract of adhesion: the insured must accept the entire contract with all of its various terms and conditions—“take it or leave it” a May amend policy by endorsement or a rider (minor changes) b Any ambiguity will be decide in the insured’s favor 6 Parts of an Insurance Contract 1 Declaration (“Dec Page”): statements that provide information about what is insured a Names, policy number, property, location, vehicle info (VIN), policy period, limits, deductibles, premiums, etc… 2 Definitions: key words used throughout the policy 3 Insuring agreement: summary of major promises of the insurer (what IS covered under the policy) a Payment of losses b Defending insured in a lawsuit (ex. providing attorney fees but we have to get the attorney ourselves) c Perils insured against i named perils: covers only losses from a list of perils ii open perils (all perils/ special coverage): covers all perils except for the ones excluded iii ex. your son shooting gravels to your house while mowing the lawn: named perils will not cover it; open perils will 4 Exclusions: list perils that are NOT covered under the policy a Earthquakes, flood, nuclear hazard, war (catastrophic to the insured) b Neglect and intentional loss (moral hazard/ not fortuitous)
c Other perils/ exposures may be excluded elsewhere in the policy—ex. in Part 3, covering for water damages except… 5 Conditions: requirements of the insured; other important provisions; What the insured needs to do in order to make the claim a Ex. no concealment, fraud, and misrepresentation b Insured’s duties after a loss i ex. calling 9-1-1 (timely reporting), protecting property from further loss, preparing inventory of damaged goods c valuation rules (ACV, RC, valued policy…) d cancellation rules e subrogation agreement 6 Endorsements (for property and liability)/ riders (for life and health): provisions added at the end of a policy that changes the wording in the main part a Comply with state’s laws b Additional requested coverage Cost Sharing Why do insurers typically require cost sharing?

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