An insured contract limits the amount paid out in a liability coverage agreement, often applied to leases or commercial agreements. Insurance companies use this to avoid large payouts and contracts may have numerous clauses and limits.
An insured contract allows for a specific limitation in a contractual liability coverage agreement. With liability coverage, an individual typically receives payments when a specific event triggers the insurance clause. An insured contract, most often applied to terms in leases, easements, or commercial agreements, carries limits on the amount paid in a given insurance clause. The limitations of this contract may not be fully specified in the original contract. Once the event triggers the insurance clause, the case can be reviewed where the insurance company reviews the case and sets limits on the payout.
A basic review of insurance contracts is that one party thinks something will not happen when another party thinks something will. For example, a business owner may believe that there is a possibility that someone will steal the business from her. Therefore, the business owner is willing to pay an insurance company a certain amount each month that will result in a large payout if a theft occurs. The insurance company, however, probably believes that the business owner’s company will not be stolen or vandalized at any time. The insurance company then sells a policy that contributes money in the hope that no future payments will occur.
Based on the example above, it can be easy to see why an insurance company might participate in an insured contract. Without these limits, an insurance company may be paying large sums of money on each insurance contract or policy. Even small events can trigger large payouts depending on the conditions surrounding the event that may trigger the specific insurance clause. Insurance contracts, and any related insured contracts, may have numerous clauses, limits and other specified conditions. Each clause has a specific purpose that relates to different liabilities that may occur during the term of the insurance policy or insured contract.
A common agreement in a contractual obligation or secured contract may be a harmless agreement, which indemnifies another party. Although the indemnity itself is not insurance, it tries to respond to a responsibility for another person. In short, one party to the contract holds the other harmless so that the other party receives payment as defined in the contractual agreement. This is a technical process that can result in many types of clauses being inserted into agreements. These clauses can be quite restrictive, resulting in low or no payouts for certain actions.
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