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Difficulty: EasyElements of a Legal Contract

A client completes a health insurance application and provides the producer with a check for the first month's premium. Under the principles of contract law, which event constitutes the legal "acceptance" of this agreement?

  1. The insurer approving the application and issuing the policy as applied forAnswer
  2. B
    The client submitting the initial premium payment with the application
  3. C
    The producer countersigning the submitted application documents
  4. D
    The producer providing a conditional receipt to the client

Answer

The insurer approving the application and issuing the policy as applied for.
In insurance contract formation, an applicant makes an offer by completing an application and submitting it with the initial premium. The legal acceptance of this offer occurs when the insurance company's underwriters evaluate the application, approve the risk, and issue the policy as requested.

Step-by-Step Solution

1
Identify the element of the contract being tested.
The question asks for the action that constitutes 'acceptance' in contract formation.
Agreement consists of two parts: an offer and an acceptance.
2
Determine who is making the offer.
By submitting the application and the initial premium, the client is making the offer to the insurance company.
An application without a premium is merely an invitation to offer, but adding the premium makes it a firm offer.
3
Determine who must accept the offer.
The insurance company must evaluate the risk and decide whether to accept the offer.
Acceptance is completed when the insurer's underwriters approve the application and issue the policy exactly as applied for.

Key Concept

Agreement (Offer and Acceptance)
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Topics

Elements of a Legal Contract

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