Final answer:
A 12-year-old student cannot qualify as a competent party in an insurance contract since individuals need to be of legal age, typically 18 or older, to enter into lawful contractual agreements. A minor can, however, be covered under an insurance policy by a competent adult, like a parent or guardian. An insurance premium is the amount paid for such coverage, and all parties involved must be legally competent to avoid issues like moral hazard.
Step-by-step explanation:
A 12-year-old student does not qualify as a competent party in an insurance contract. Competency to enter into a contract typically requires the individuals to be of legal age, which is usually 18 years or older in most jurisdictions. In insurance terms, the applicant must show an insurable interest and legal capacity to enter into a binding contract. Therefore, contracts involving minors are generally voidable because they lack the legal capacity to enter contractual agreements, and this extends to insurance contracts as well.
However, a minor can be insured under a policy taken by a competent party, such as a parent or guardian. In instances where insurance for a minor is needed, the parent or guardian would act as the policyholder, and the child would be the insured party. Even though the 12-year-old applicant may not directly engage in a contract, they can still be covered under an insurance policy that is set up by a competent and legally capable individual.
An insurance contract is a form of legal agreement where the insurer agrees to compensate the insured for specific losses in exchange for an insurance premium. It must be entered by parties who are legally deemed competent, to avoid issues such as moral hazard or other complexities surrounding contractual obligations and enforceability.