What is an insurance contract?

You have just bought some insurance. It could be for your home, auto or your business. You signed an application. Did you know that this application is a contract? An insurance contract needs to consist of at least the following:

  • An agreement has to be made with an offer made and accepted. It can be in writing or it can be oral.
  • There has to be something given to the other person in the contract. You pay money to insurer and the insurer agrees to pay you if there is a claim.
  • The property you are buying the insurance for has to be of a legal nature. You cannot insure a shipment of crack cocaine.
  • You have to be capable of making the decision to buy the insurance. You cannot be insane or otherwise mentally incompetent.
  • You cannot be intoxicated on alcohol or illegal substance so that you would not understand the contract you are entering.
  • You must be genuinely intending to purchase the insurance. If your thought is commit fraud or you are under duress then you could not have a genuine intent.
  • You must have a financial interest in the item being insured. If you don't own it, you cannot insure it.
  • You are held to a higher standard of good faith then most other types of contracts. This means you must declare anything that would affect the price or acceptance of your business by the insurance company. Yes, the deck is stacked!
  • There has to be indemnity - there has to be some value for the property or item to be insured.
  • If you fail to meet this criteria then your contract can be void or voidable. Either one could leave you without insurance.


If you don't understand the application then you need to tell your broker or agent. You are paying for this coverage. You have a right to have it explained to you. You have a right to choose the coverage you want. Take control of your insurance.