Business Glossary

legal capability of those involved in mutual assent of making a contract, including an insurance contract. Those who have been deemed to be incompetent to make a valid contract include intoxicated and insane persons, and enemy aliens. Minors can enter into a contract, but it is voidable at the option of the minor. For example, if an agent sells an insurance policy to a minor, and the insurance company agrees to underwrite it, the policy can be voided at any time the minor wishes both before and after the minor reaches the age of majority. The insurance company cannot void the contract.

group arrangement in which a network of attorneys provides legal services to the participants in the plan with the attorney fees being reimbursed by the provider. The attorneys who are members of the network provide their legal services at a reduced rate from their customary fee to the plan participants. Most legal plans are voluntary on the part of the employees with the employees paying their entire cost through payroll deduction insurance. There are two main types of group legal plans:

1. Access plans-participants in the plan receive legal advice for such matters as simple wills, and demand letters plus other legal advice over the telephone.
2. Comprehensive plans-participants in the plan receive legal advice through office and telephone consultations for such concerns as wills, trusts, bankruptcy, civil litigation, real estate transactions, and other general legal planning.

compensation for loss. In a property and casualty contract, the objective is to restore an insured to the same financial position after the loss that he or she was in prior to the loss. But the insured should not be able to profit by damage or destruction of property, nor should the insured be in a worse financial position after a loss.

In life insurance the situation is totally different. By the payment of a single premium, the beneficiary of an insured can be placed in a much better financial position at the death of an insured than he or she was in prior to the death. However, the payment of a predetermined amount upon the insured's death does not make a life insurance policy a contract of indemnity.

In hospital indemnity and other health insurance plans, coordination of benefits is designed so that the insured cannot profit from an illness.

terms specifying obligations of an insured to keep a policy in force. For example, an insured must pay the premiums due; in life insurance, if death occurs, the beneficiary or the insured's estate must submit proof of death; if there is a property loss, the insured must submit proof of loss.

agreement prepared by an insurance company and offered to prospective insureds on a take-it-orleave- it basis. If the contracts are misinterpreted by insureds, courts have ruled in their favor since the insureds had no input into the contract. All insurance contracts have been deemed by courts to be contracts of adhesion.

contract that may or may not provide more in benefits than premiums paid. For example, with only one premium payment on a property policy an insured can receive hundreds of thousands of dollars should the protected entity be destroyed. On the other hand, an insurance company can collect more in premiums than it ever pays out in benefits, as in a fire insurance policy under which the protected property is either damaged or destroyed. Most insurance contracts are aleatory in nature.

relationship between an insured person or property and the potential beneficiary of the policy. For example, a wife has an insurable interest in her husband's life, because she would be financially harmed if he were to die. Therefore, she could receive the proceeds of the insurance policy if he were to die while the policy was in force. If there is no insurable interest, an insurance company will not issue a policy.

signature on a draft or check by a payee before transfer to a third party. A payee provides such an endorsement when transferring this draft to the payee's bank. Checks can be endorsed in three different ways. In a blank endorsement, once signed, it becomes a negotiable instrument and can be used as such by anyone. A restrictive endorsementlimits the use of the check to a single purpose. "For deposit only" is written on a check when it is deposited by mail. If the check is lost in the mail and subsequently found, it cannot be cashed. A special endorsementis used to pay someone else. All that is required is to indicate the payee and sign.

something of value that one party gives to another in exchange for a promise or act. In law, a requirement of valid contracts. A consideration can be in the form of money, commodities, or personal services; in many industries the forms have become standardized.

offer and acceptance upon which an agreement is based. For a contract to be legal (and thus enforceable in a court of law), an offer must be made by one party to another party, who accepts the offer. If properly negotiated, the insurance contract is deemed to be a contract of mutual assent.