Regulation Of The Insurance Contract

Because insurance contracts are complex and their terms subject to various interpretations, there exists a continual stream of litigation. This situation points out the fact that if those persons trained in legal terminology cannot agree upon the provisions of an insurance contract, it is likely that the average individual would quickly find himself in a state of confusion when confronted with relatively simple coverage questions. The plight of such persons has been considered by legislators in developing a comprehensive set of laws which govern what may or may not be included in an insurance contract and, further, what insurance contracts are acceptable or nonacceptable for use in a particular state. These laws are an attempt to standardize the insurance contract and to provide some protection against insurers which write contracts so full of exclusions and limitations that the insured really has little protection.

Most states have enacted legislation or established codes which provide for certain required, permitted, and prohibited provisions in both life and health insurance contracts. In most cases these provisions are applicable only to legal reserve companies since different laws govern other insurers such as fraternal benefit societies.