Chapter 2 - The Insurance Contract
A contract is a legal agreement between two or more competent parties that promises a certain performance in exchange for a certain consideration. When an insurance company agrees to pay for an insured's losses in exchange for a certain premium, the two parties have entered into a contract. Although a contract of insurance can be oral, it is usually written in the form of an insurance policy.
- 1.Which of the following is not a requirement for forming a valid contract?
- A.
Consideration
- B.
Offer and acceptance
- C.
Competent parties
- D.
Signatures of the parties involved
- 2.What is meant by a contract of adhesion?
- A.
Both parties are required to provide services for the other.
- B.
One party draws up the contract provisions, and the other party adheres to the terms.
- C.
The contract can be revoked by any party at any time for any reason.
- D.
A contract that is formed without any consideration by either party.
- 3.Which of the following describes the principle of indemnity?
- A.
After a loss, an insured should be restored to approximately the same condition that existed before the loss.
- B.
Every insured will receive full compensation for all losses in all cases.
- C.
When property is damaged or destroyed, the insurance company must pay the full replacement cost.
- D.
In the case of bodily injuries, liability coverage must be available without regard to any policy exclusions.
- 4.Which part of an insurance policy describes what property and/or perils will be covered by the contract?
- A.
Definitions
- B.
Exclusions
- C.
Insuring agreement
- D.
Conditions
- 5.What is the consideration that an insurer gives to the insured under an insurance contract?
- A.
Stated benefits and the dates on which they are to be paid
- B.
The premium
- C.
A promise to pay for certain losses if they occur
- D.
A promise to be conscientious about the customer's situation
- 6.Under an insurance contract, the uncertainty of events can lead to unequal financial results for the two parties. This means that insurance is what kind of contract?
- A.
Unilateral
- B.
Aleatory
- C.
Conditional
- D.
Utmost good faith
- 7.The "ground rules" are described in which part of an insurance policy?
- A.
Definitions
- B.
Exclusions
- C.
Insuring agreement
- D.
Conditions
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