Ch. 2 Insurance Contracts

Question 1

An agreement between two or more parties that is enforceable by law

Answer 1

Legal Contract

Question 2

What are the essential elements of a legal contract

Answer 2

Competent parties, legal purpose, offer and acceptance, and consideration

Question 3

All parties to a contract must have legal capacity, or competency, to enter into a legal contract

Answer 3

Competent Parties

Question 4

All parties to a contract must enter it for a legal purpose and in good faith

Answer 4

Legal Purpose

Question 5

To form an agreement, one party must make and communicate an offer to the other party, and the second party must accept that offer

Answer 5

Agreement

Question 6

The exchange of value between the parties to the contract that makes the contract binding

Answer 6

Consideration

Question 7

What is indemnity

Answer 7

Compensation for a loss

Question 8

What are contracts of adhesion

Answer 8

One party writes the contract, and the other party may not negotiate it

Question 9

What are aleatory contracts

Answer 9

The parties have an unequal exchange of consideration

Question 10

What are conditional contracts

Answer 10

Both parties must perform certain duties to make the contract enforceable

Question 11

What are unilateral contacts

Answer 11

One party is legally bound to contractual obligations

Question 12

What are personal contracts

Answer 12

The contract is between the insurance company and an individual, and it cannot be transferred or assigned to another party

Question 13

Statements made by the applicant on the application which are believed to be true to the best of the applicant’s knowledge and belief at the time

Answer 13

Representations

Question 14

A false statement contained in the application

Answer 14

Misrepresentations

Question 15

Statements that impact the acceptance of an insurable risk

Answer 15

Material Representations

Question 16

Statements that do not affect the acceptance or rating of the risk

Answer 16

Immaterial Representations

Question 17

A statement that is guaranteed to be true in all aspects

Answer 17

Warranties

Question 18

The willful holding back or failure to communicate material information pertinent to the issuance of the contract or payment of a claim

Answer 18

Concealment

Question 19

A false statement made intentionally to deceive or induce another party to issue a contract, part with something of value, or surrender a legal right

Answer 19

Fraud

Question 20

A voluntary surrender of a known or legal right or advantage

Answer 20

Waiver

Question 21

The judicial consequence that follows a waiver: it denies a contractual right based on prior actions contrary to what the contract states

Answer 21

Estoppel

Question 22

What are the basic parts of property and casualty insurance

Answer 22

The Declarations page, the Insuring Agreement, Conditions, and Exclusions

Question 23

It describes basic information about the policy that connects the policy to a specific insured and a specific property, including: who, what, when, where, and how much

Answer 23

Declarations Page

Question 24

The insurer’s promise of protection to the insured, affirms that the insurer will indemnify the insured for covered losses. The perils insured against are listed here

Answer 24

Insuring Agreement

Question 25

It specifies the obligations that the insured and insurer agree to follow for the policy provisions to take effect, as well as other conditions of coverage

Answer 25

Conditions Section

Question 26

It specifies the perils that are not insured against or the property that is not covered by the policy

Answer 26

Exclusions Section

Question 27

What additional components of property and casualty insurance further define and clarify the policy

Answer 27

Limitations, Endorsements, Additional Coverages, and Definitions

Question 28

It reduces coverage without excluding it, such as by providing a smaller amount of insurance (known as a sublimit) that applies to certain losses

Answer 28

Limitations Page

Question 29

Policy forms that alter the provisions of an insurance contract typically added to the policy for an additional premium

Answer 29

Endorsements Section

Question 30

It states any applicable limit of insurance for each specific coverage, and specifies whether that limit is included within the policy’s limit of liability or in addition to policy limits

Answer 30

Additional Coverages Section

Question 31

A section containing words, terms, and phrases that are clearly described and used in an insurance policy

Answer 31

Definitions Section

Question 32

Any person, company, or organization protected by an insurance contract is known as an insured

Answer 32

Types of Insureds

Question 33

A person, company, or organization designated on the Declarations page of the policy

Answer 33

Named Insured

Question 34

The person, company, or organization whose name appears first on the Declarations

Answer 34

First named Insured

Question 35

A person, company, or organization not ordinarily protected by a policy but who, through the addition of an endorsement to the policy, is granted status as an insured

Answer 35

Additional Insured

Question 36

A sudden, unforeseen, unintended, and unplanned event that results in bodily injury or property damage

Answer 36

An Accident

Question 37

An accident, including continuous or repeated exposure to the same generally harmful conditions that result in loss or damage

Answer 37

An Occurrence

Question 38

A temporary written or oral legal agreement (contract) issued by an insurance company or a producer to provide short-term insurance

Answer 38

A Binder

Question 39

A document that shows evidence that specific types of insurance were purchased by the insured, at certain limits, and that they were in place on the date the certificate of insurance was issued

Answer 39

Certificate of Insurance

Question 40

An initial written statement informing the insurer that a loss took place

Answer 40

Notice of loss

Question 41

A sworn, formal, detailed statement about a loss that occurred

Answer 41

Proof of loss

Question 42

A condition states that insurance coverage only applies to losses occurring when the policy is in force and within a region specified by the policy

Answer 42

Policy Period

Question 43

May be limited to the premises, such as only covering property and liability losses at a residence or business building, or it may be more expansive for mobile property and liability claims

Answer 43

Policy Territory

Question 44

If the insurer broadens coverage under a new edition of the policy form with no premium increase, that broadening of coverage will apply to existing policies using that form without the need for an endorsement

Answer 44

Liberalization Clause

Question 45

The legal process allowing an insurer to seek recovery for a paid claim from a third party responsible for the loss

Answer 45

Subrogation

Question 46

The policies share losses by the ratio of applicable limits of insurance each insurer writes compared to the total of all limits available for the loss

Answer 46

Pro Rata Liability

Question 47

Some policies require the insurers to share the loss by contributing equal shares until each insurer has paid its limit of insurance

Answer 47

Contribution of equal shares

Question 48

If the insurer and the insured disagree about the amount payable for a claim or whether a claim is payable at all, the dispute is settled by...

Answer 48

Arbitration

Question 49

If the insurer cancels the policy, a proportionate cancellation of insurance will refund the unearned premium, and the insurer only retains the earned premium

Answer 49

Pro Rata Cancellation

Question 50

If the insured cancels the policy, the insurer retains a portion of the unearned premium to cover administrative costs, determined by the insurer’s short-rate table

Answer 50

Short-rate Cancellation

Question 51

If the policy is canceled within a certain number of days after being issued, or if the insurer reverses an offer of coverage, the policy may be canceled retroactive to the effective date of the policy, meaning no coverage is provided whatsoever

Answer 51

Flat Cancellation