The insurance contract is an agreement that is legally binding on the parties to the contract. The contract can be verbal and written. If you buy cheap car insurance with no deposit, the moment there is an agreement the contract is on from the agreed date, and the policy is treated as evidence of the contract. Like other business contracts insurance contracts are subject to the laws of contract. In case of breach of contract either by the insured or the insurance company, the law will help in overcoming the breaches or finding the remedy to the breach. Insurance contracts have the following important features,
- Personal Contract
- Conditional Contract
- Unilateral Contract
- Adhesion Contract
- Aleatory Contract
1. Personal Contract
In this type of contract, the insurance company binds only a single insured. The insurance contract is between the insured and the insurance company and in case the insured sells his car or his property then the insurance company is not bound to cover the new insured. The coverage of the property ceases once it is sold. The new insured has to have a separate proposal and will be evaluated separately and if found suitable then the cover is provided, otherwise, the insurance company based on its risk assessment has a right to refuse the cover to the new insured.
2. Conditional Contract
An agreement is considered as a conditional contract enforceable only if a certain condition is satisfied. It is named a hypothetical contract also. The purpose of this type of contract is to make sure that specific conditions are met before the contract becomes effective. An insurance contract is a conditional contract and the insurer is obliged to fulfill its promise only upon the fulfillment of a promise by the insured. If the insured does not fulfill the conditions of the contract then the insurers may not honor their promise of financial compensation.
3. Unilateral Contract
In a unilateral contract, only one person or group, or organization to the agreement makes a promise in the agreement. The insurance contract is a typical example of a unilateral contract. An insurance contract is a contract whereby the insurance company promises to pay the insured the financial compensation in case of loss occurring due to an insured peril. If the event does not occur then the Insurers are not obliged to pay anything to the insured.
4. Adhesion Contract
An adhesion contract is a contract wherein one party to the contract has stronger bargaining power and is responsible for drafting the contract and the other party which is a weaker party must abide by the contract, the weaker party has very little or no power to modify the terms of contract prepared by the stronger party. The stronger party offers the contract on a take it or a leave its basis.
In insurance contracts, the insurance company is treated as the stronger party and the insured is considered as a weaker party. Let’s say you need auto insurance rates under $50 per month; the insurance company policy is prepared by the insurers and if the insured is not comfortable with the terms and conditions of the policy, he may choose to take it or leave it but usually cannot make changes to the policy document.
The adhesion contracts are lengthy and cannot be understood by the layman but unfortunately, it gives an unfair advantage to the insurer, hence in the courts of law in case of ambiguity of wordings in the contract. The insured case is considered more sympathetically and goes against the insurer. There is nothing illegal about adhesion contracts; it is used as a tool of convenience.
5. Aleatory Contract
An aleatory contract means that until an agreed event occurs, both parties need not perform the particular action. The meaning of aleatory is chance and the contract is dependent upon the chance of occurring of an event. The amount paid by both parties is unequal. The insured pays the premium and if nothing happens then the insured will not get anything and if there is an accident then the insurer will end up paying multiple times the premium paid by the insured. The contract is for unequal amounts depending upon a chance event.
Just one tip: don’t buy your car insurance policy blindly. Do your research so you can get the contract that’s right for you. Good2go Auto Insurance may be the company you are looking for and need.
