An insurance contract is a document representing the agreement between an insurance company and the insured. Central to any insurance contract is the insuring agreement, which specifies the risks that are covered, the limits of the policy, and the term of the policy. Additionally, all insurance contracts specify:
conditions, which are requirements of the insured, such as paying the premium or reporting a loss;
limitations, which specify the limits of the policy, such as the maximum amount that the insurance company will pay;
exclusions, which specify what is not covered by the contract.
Obviously, the contents of an insurance contract depends on the type of policy, what the insurance applicant wants, and how much he is willing to pay. The details of insurance policies are covered in Standard Insurance Policies. This article covers what is required of valid insurance contracts, since only valid contracts are legally enforceable.
There are 4 requirements for any valid contract, including insurance contracts:
offer and acceptance,
competent parties, and
Insurance contracts have an additional requirement that they be in legal form. Insurance contracts are regulated by state law, so insurance contracts must comply with these requirements. The state may stipulate that only certain forms may be used for certain types of insurance or that the contract must have certain provisions. Additionally, contracts must be approved by the state insurance department before they can be used, to ensure that they comply with regulations.
If a contract lacks any of these essential elements, then it is a void contract that will not be enforced by any court. For instance, most contracts signed by a minor are void contracts because they are not legally competent. A voidable contract is one that can be nullified by a party if the other party breaches the contract, or because material information was omitted or false in the contract. The party with the right to void can also choose to enforce it, instead. For instance, insurance companies can often void a contract because the applicant provided false information on the application. Thus, if someone was in an auto accident, and that person previously filled out the insurance application stating that he had no speeding tickets, when, in fact, he had, then the insurance company can void the contract and not pay the claim. Although most contracts can be oral, most are written, especially insurance contracts, because of their complexity.