Insurance WAEC

Insurance Contracts

Overview

Every policy you will ever study begins life as a contract, and a contract is nothing more than a promise the law is willing to enforce. Before an insurer pays a single naira, before indemnity or subrogation or any other principle can bite, there must first be a valid agreement between two parties. Get the foundation wrong and the whole policy can collapse as if it never existed.

In this lesson you will learn exactly what an insurance contract is and how it differs from buying bread or hiring a taxi, who the two parties are and what each must do, and the six essentials the law demands before it will call an agreement binding: offer, acceptance, consideration, capacity, legality and consent. You will then meet the one feature that sets insurance apart from almost every other contract in commerce, the duty of the utmost good faith, and learn to test any arrangement and say whether it truly holds.

Objectives

  1. Define an insurance contract and distinguish it from other commercial contracts
  2. Identify the parties to an insurance contract and state the role of each
  3. Explain the essential features of a valid contract: offer, acceptance, consideration, capacity, legality and consent
  4. Apply the essential features to determine whether a given insurance arrangement is legally valid
  5. Explain why an insurance contract is described as a contract of the utmost good faith

Mind map

This topic is mapped out so you can see how the ideas connect.

Flashcards

Quick recall practice on the facts this topic is tested on.

Lesson Note

A young driver in Ibadan fills in a form, hands over ₦35,000 and drives away believing he is insured. Three weeks later he dents another car and makes a claim, only to be told there is no contract at all. How can that be, when he paid his money and holds a receipt? The answer lies in the rules that turn a loose arrangement into a binding contract. Money changing hands is not enough. A valid insurance contract has parts that must all be present, and if even one is missing the agreement is empty. Master these rules and you can look at any insurance arrangement and say, with confidence, whether the law will stand behind it.

Lesson Evaluation

Congratulations on completing the lesson on Insurance Contracts. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.

You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.

Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.

  1. The two parties to an insurance contract are the: A. Agent and the broker B. Insured and the insurer C. Proposer and the loss adjuster D. Underwriter and the reinsurer Answer: B
  2. In insurance, a completed and submitted proposal form is best regarded as: A. An invitation to treat B. An acceptance C. An offer D. A counter offer Answer: C
  3. Which of the following is NOT an essential feature of a valid insurance contract? A. Offer and acceptance B. Consideration C. Salvage D. Legality Answer: C
  4. The consideration provided by the insurer in an insurance contract is the: A. Premium B. Promise to pay a valid claim C. Proposal form D. Sum insured Answer: B
  5. An agreement to insure goods that are being smuggled into the country is: A. Valid and enforceable B. Voidable at the insurer's option C. Void for lack of legality D. Binding once the premium is paid Answer: C

Recommended Books

Principles of Risk Management and Insurance
Principles of Risk Management and Insurance
Subtitle: Thirteenth edition
Publisher: Pearson
Year: 2016
ISBN: 978-0-13-408257-8
Description: The standard introduction to risk and insurance, covering risk management, insurer operations and the main lines of life, health, property and liability cover.
Fundamentals of Risk and Insurance
Fundamentals of Risk and Insurance
Subtitle: Tenth edition
Publisher: Wiley
Year: 2008
ISBN: 978-0-470-08753-4
Description: A clear account of the nature of risk and the economics of insurance, written for beginning students across life, health, property and liability insurance.
Fundamentals of Insurance
Fundamentals of Insurance
Subtitle: Second edition
Publisher: Himalaya Publishing House
Year: 2017
ISBN: 978-93-5097-079-9
Description: An accessible treatment of insurance in four parts: the basics of risk, insurance management, life insurance and non-life insurance.

Revision Questions

Wondering what past questions for this topic looks like? Here are a number of questions about Insurance Contracts from previous years

WAEC SSCE - Insurance - 2017

Question 1 Report

(a)(i) What is a proposal form?
(ii) List four general questions that are contained in a proposal form.

(b) List and explain three documents used in effecting insurance contracts. 
 

Answer Details

(a)(i) What a proposal form is

A proposal form is the printed document supplied by the insurer which the intending insured (the proposer) completes and signs to apply for insurance cover. It contains a set of questions through which the proposer supplies all the material facts about himself and the subject matter of the insurance. The information given forms the basis of the contract, enabling the insurer to assess the risk, decide whether to accept it and fix the appropriate premium.

(a)(ii) Four general questions contained in a proposal form

  1. The full name and address of the proposer.
  2. The age, sex and occupation of the proposer.
  3. A description of the subject matter to be insured and the sum to be insured (its value).
  4. Details of previous insurance and claims history, including whether any insurer has ever declined, cancelled or refused to renew a policy.

(Other acceptable general questions: the period of insurance required and a declaration that the answers are true.)

(b) Three documents used in effecting insurance contracts

  • Proposal form: As explained above, it is the document by which the proposer formally applies for cover and discloses the material facts on which the insurer bases its decision. It represents the offer stage of the contract.
  • Cover note: A temporary document issued by the insurer to confirm that cover is in force pending the preparation of the full policy. It gives the insured immediate protection and states the main terms, remaining valid for a short period (often 30 or 60 days) until the policy document is ready.
  • Insurance policy (policy document): The formal, legal contract between the insurer and the insured. It sets out in detail the names of the parties, the subject matter, the risks covered, the sum insured, the premium, the period of cover, the exclusions and the conditions. It is the conclusive evidence of the terms of the agreement.

(The certificate of insurance and the premium receipt are also acceptable documents.)

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