Texas General Lines — Life, Accident, Health and HMOGeneral InsuranceMedium
A life insurance policy is described as a 'contract of adhesion'. What does this term imply about the policy's terms and conditions?
- AThe policy is prepared by the insurer, and the insured must accept or reject it as is.
- BThe policy terms are negotiable between the insured and the insurer.
- CThe policy's conditions are subject to review and approval by a third-party regulator.
- DThe policy requires the mutual agreement of both parties on all specific clauses.
Show answer & explanationAnswer & explanation
Correct answer: A. The policy is prepared by the insurer, and the insured must accept or reject it as is.
A contract of adhesion means one party (the insurer) drafts the contract, and the other party (the insured) has little to no ability to negotiate the terms. They must 'adhere' to the contract as written, accepting it or rejecting it entirely.
Why the other options are wrong
- B. This contradicts the nature of a contract of adhesion, where terms are typically non-negotiable by the insured.
- C. Regulatory approval ensures fairness but doesn't change the contractual nature of adhesion between insurer and insured.
- D. While mutual agreement is essential for a contract, adhesion implies that the agreement is to pre-set terms, not negotiated specific clauses.
Contract of Adhesion
An insurance contract is a contract of adhesion, meaning it is prepared by the insurer and accepted by the insured on a 'take-it-or-leave-it' basis, with little to no negotiation of terms by the insured.
- Insured has less bargaining power.
- Courts typically interpret ambiguities in favor of the insured.
- Applies to most insurance policies.
Memory trick: Adhesion: stick with what they give you, no changes for you.