Most ordinary contracts are bona fide or good faith contracts. Insurance contracts, however, are contracts "uberrimae fidei," or contracts of the utmost good faith. The greatest degree of good faith is needed in the negotiations preceding the issuance of the contract. This requirement has a long and interesting history.

In the earliest days of marine insurance the contracts were entered into in places remote from the ships and cargoes covered by the policies. It was necessary for the insurer and insured to bargain on a level of good faith above that required in the usual commercial intercourse of the day. This requirement is the foundation upon which the doctrines of warranty, representation, and concealment are based.

It has been said that the best life insurance (http://www.equote.com/info/life-insurance-info.html) contract is as personal as a wedding contract. Both the insured and the insurance company, in dealing on a plane of utmost good faith, take notice not only of the contract being negotiated but also of the character, conduct, and credit of each other. In common parlance a certain piece of property is spoken of as being insured. Actually, it is the owner who is insured.

The insurance contract is not attached to the property and does not pass with it to a new purchaser. The assent of the insurance company is necessary to assign any contract of insurance except a life insurance policy. The life insurance contract is not, strictly speaking, a personal contract; and it may be assigned without the permission of the company.

Once a loss has occurred under any contract of property insurance, the contract is reduced to a mere money claim; and it becomes freely assignable as a debt or any other intangible property right. Life insurance policies (http://www.equote.com/li/term-life-insurance-quote.html), on the other hand, may not be assigned after the insured has died unless the company approves the assignment.

The insurance contract is a contract in entirety, although this feature has now been affected by statute. This means that, even though the object insured is destroyed by one of the hazards named in the policy (or by one not named, for that matter) before the expiration of the policy, no portion of the premium is refundable. The entire premium is gone the moment the contract becomes effective and the risk attaches. If for some reason the risk never attaches, the entire premium is refundable.

Several examples may clarify these statements. Suppose you buy a three-year fire policy on your house for a premium of $50. Two days afterward a tornado rips through the house, leveling it. You still have a fire policy with nearly three years to run but no house to be protected.

Nevertheless, you will not be entitled to a refund under common law. This nature of insurance contracts proved so harsh in application that the laws and insurance regulations of all states now require insurance companies to make refund of premiums in cases in which the insured decides he no longer has need for the policy.

The refund of a no medical life insurance (http://www.equote.com/li/nomedicallifeinsurance.html) premium is not pro rata but is a smaller amount. It should be noted that there are a few coverages, such as riot and rain insurance, in which the right to cancel is severely restricted.