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
- Define an insurance contract and distinguish it from other commercial contracts
- Identify the parties to an insurance contract and state the role of each
- Explain the essential features of a valid contract: offer, acceptance, consideration, capacity, legality and consent
- Apply the essential features to determine whether a given insurance arrangement is legally valid
- Explain why an insurance contract is described as a contract of the utmost good faith
Lesson Note
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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.
- 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
- 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
- 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
- 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
- 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
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Recommended Books
Past Questions
Wondering what past questions for this topic looks like? Here are a number of questions about Insurance Contracts from previous years
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.
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