Unenforceable Contract

What Does Unenforceable Contract Mean?

An unenforceable contract, in the context of insurance, refers to an insurance contract that cannot be legally enforced because it violates a statute, goes against public policy, or is associated with a prohibited activity. Since it is not legally binding, the policyholder cannot legally compel the insurance company to pay out benefits. Similarly, the insurance company is not legally entitled to receive premium payments from the policyholder.

Insuranceopedia Explains Unenforceable Contract

For example, an insurance policy that offers coverage for damages a policyholder might incur during an illegal activity would not be enforceable, as it violates the law.

For a contract to be enforceable, certain legal requirements must be met. For instance, a contract requires valid signatures. If the interested party does not sign the contract, it is not enforceable. Additionally, contracts often have expiration dates. Therefore, a policyholder who attempts to sue the insurance company for benefits after the policy has expired is not entitled to any payments. Lastly, handshake deals are also not considered enforceable contracts.

This is one reason it pays to read the actual policy document before you sign, since the wording and conditions inside it are what determine whether your insurer has to pay a claim. Reviewing the basics of how a homeowners insurance policy works can help you spot the parts of a contract that affect enforceability, like exclusions and expiration dates. The same principle applies when you’re shopping for life coverage, where knowing how to choose the right life insurance policy includes confirming that the contract terms are valid and signed before any benefit can be paid out.