Ch1 B (contract Law)

Question 1

is an agreement between two or more parties enforceable by law. Because of unique aspects of insurance transactions, the general law of ——-had to be modified to fit the needs of insurance.

Answer 1

Contract

Question 2

order for insurance contracts to be legally binding, they must have 4 essential elements:

Agreement — offer and acceptance;
Consideration;
Competent parties; and
Legal purpose.

Answer 2

Elements of legal contracts

Question 3

There must be a definite offer by one party, and the other party must accept this offer in its exact terms. In insurance, the applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer’s underwriter approves the application and issues a policy.

Answer 3

Offers and acceptance

Question 4

something of value that each party gives to the other. The ———on the part of the insured is the payment of premium and the representations made in the application. The ——— on the part of the insurer is the promise to pay in the event of loss.

Answer 4

Consideration

Question 5

Know this insures consideration

Answer 5

Insurer’s consideration is the promise to pay for losses; insured’s consideration is the payment of premium and statements on the application

Question 6

must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

Answer 6

Parties to a contract

Question 7

The purpose of the contract must be legal and not against public policy. To ensure ———of a Life Insurance policy, for example, it must have both: insurable interest and consent. A contract without a ———is considered void, and cannot be enforced by any party.

Answer 7

Legal purpose

Question 8

Distinct characteristics of a insurance contract

Answer 8

1.Contract of adhesion
2.aleatory

Question 9

is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. In other words, insurance contracts are offered on a take-it-or-leave-it basis by an insurer. Any ambiguities in the contract will be settled in favor of the insured.

Answer 9

Contract of adhesion

Question 10

Insurance contracts that’s has an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss.

Answer 10

Aleatory

Question 11

only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force.

Answer 11

Uninateral contract

Question 12

requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations. For example, the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim.

Answer 12

Conditional contract

Question 13

an absolutely true statement upon which the validity of the insurance policy depends. can be considered grounds for voiding the policy or a return of premium. Because of such a strict definition, statements made by applicants for life and health insurance policies, for example, are usually not considered warranties, except in cases of fraud.

Answer 13

Warranty

Question 14

statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true. For insurance purposes, ———-are the answers the insured gives to the questions on the insurance application.

Answer 14

Representations

Question 15

Untrue statements on the application are considered ———- and could void contract

Answer 15

Misrepresentations

Question 16

a statement that, if discovered, would alter the underwriting decision of the insurance company.

Answer 16

Material representation

Question 17

if material misrepresentations are ———they are considered fraud.

Answer 17

Intentional

Question 18

Know this

Answer 18

Representations are statements believed to be true. Insured’s statements on the application are representations.