Chapter 2

Question 1

describes a contract that has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. The applicant adheres to the terms of the contract on a “take it or leave it” basis when accepted.

Answer 1

Adhesion

Question 2

represents themselves and the insurer at the time of application.

Answer 2

Agent

Question 3

contract presents the potential for an unequal exchange of value or consideration between both parties. contracts are conditioned upon the occurrence of an event.

Answer 3

Aleatory

Question 4

the appearance of the insurer providing the agent authority to perform unspecified tasks based on the agent-insurer relationship.

Answer 4

Apparent Authority

Question 5

represents themselves and the insured (i.e., the client or customer) at the time of application.

Answer 5

Broker

Question 6

one who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms and not influenced by drugs or alcohol.

Answer 6

Competent Party

Question 7

the failure of the applicant to disclose a known material fact when applying for insurance.

Answer 7

Concealment

Question 8

policy describes the insurer’s promise to pay benefits depends on the occurrence of an event covered by the contract.

Answer 8

Conditional

Question 9

the part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.

Answer 9

Consideration

*Applicants provide the insurer with a completed application and initial premium as consideration for insurance.

Question 10

the legal impediment to one party denying the consequences of its own actions or deeds if such actions or deeds result in another party acting in a specific manner or if certain conclusions are drawn.

Answer 10

Estoppel

Question 11

The explicit authority granted to the agent by the insurer, as written in the agency contract.

Answer 11

Express Authority

Question 12

The responsibility an insurance producer has to account for all premiums collected and provide sound financial advice to clients. in a position of trust with regards to the funds of their clients and the insurer.

Answer 12

Fiduciary

Question 13

includes the deliberate knowledge of or intentional deceit to make false statements to be compensated by an insurance company.

Answer 13

Fraud

Question 14

an authority not explicitly granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities.

Answer 14

Implied Authority

Question 15

Contracts attempt to return the insured to their original financial position

Answer 15

Indemnity contract

Question 16

is the financial, economic, and emotional impact associated with a person experiencing a specified loss. a loss if they have more to gain by not suffering the loss.

Answer 16

Insurable Interest

Question 17

means an insurance contract must be legal in nature and not in opposition to public policy

Answer 17

Legal Purpose

Question 18

a written contract in which one party promises to indemnify another against loss that arises from an unknown event.

Answer 18

Insurance Policy

Question 19

a false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk.

Answer 19

Material misrepresentation

Question 20

involves parties put their agreement in writing, all previous verbal statements come together in that writing, and a written contract cannot be changed or modified by parol (oral) evidence.

Answer 20

Parol Evidence Rule

Question 21

an amendment added to an insurance contract that overrides terms in the original policy. May add or remove coverages, change deductibles, or revise any other policy feature.

Answer 21

Policy rider or endorsement

Question 22

means the insured is entitled to coverage under a policy that any sensible and prudent person would expect it to provide

Answer 22

Reasonable expectations

Question 23

are statements made by the applicant that they consider to be true and accurate to the best of the applicant’s belief.

Answer 23

Representations

Question 24

the right for an insurer to pursue a third party that caused an insurance loss to the insured.

Answer 24

Subrogation

Question 25

Contracts mean only one party, the insurer, makes any kind of enforceable promise

Answer 25

Unilateral

Question 26

involves the belief that both the policyowner and the insurer must know all material facts and relevant information, and as such, they will provide each other with all material facts and relevant information.

Answer 26

Utmost Good Faith

Question 27

pays a stated sum regardless of the actual loss incurred

Answer 27

Valued contract: *Life insurance contracts are valued contracts.

Question 28

is an agreement that, for a reason satisfactory to the court, may be set aside by one of the parties in the contract.

Answer 28

Voidable Contract

Question 29

the voluntary giving up of a legal, given right.

Answer 29

Waiver

Question 30

a statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract.

Answer 30

Warranty

Question 31

the insurer binds itself to pay a certain sum upon the death of the insured

Answer 31

life insurance contract

Question 32

the insurer binds itself to pay a certain sum for accidental injury, sickness, or disability

Answer 32

health insurance

Question 33

the insurer agrees to pay for loss sustained to the insured's covered property

Answer 33

property insurance

Question 34

the insurer agrees to pay for losses or damages caused by the insured

Answer 34

casualty insurance

Question 35

two parties to an insurance contract

Answer 35

the insured and the insurer.

Question 36

The following four essential elements must be contained in every contract for it to be legally valid and binding (enforceable):

Answer 36

Offer and acceptance Consideration Legal purpose Competent parties

Question 37

When an offer is answered by a counter-offer, the first offer is ?

Answer 37

void

Question 38

is simply an agreement without legal effect

Answer 38

A void contract

Question 39

an agreement that, for a reason satisfactory to the court, may be set aside by one of the parties to the contract.

Answer 39

A voidable contract

Question 40

means the contract is made null and void

Answer 40

Rescission

Question 41

is either a valued contract or an indemnity contract

Answer 41

An insurance contract

Question 42

written contract in which one party promises to indemnify another against loss that arises from an unknown event.

Answer 42

A policy

Question 43

are required to make a full, fair, and honest disclosure of the risk to the agent and insurer

Answer 43

Insurance applicants

Question 44

are contracts of adhesion because the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and the insurer.

Answer 44

Insurance contract

Question 45

is considered competent if it has been licensed or authorized by the state in which it conducts business.

Answer 45

The insurer

Question 46

is considered to be a personal contract or personal agreement between the insurer and the insured.

Answer 46

Most insurance

Question 47

to provide full compensation for proved harm.

Answer 47

The concept of tort law

Question 48

has the authority to seek insurance applicants for a company but does not have any authority to bind coverage on behalf of a company to a customer.

Answer 48

A solicitor

Question 49

the failure to act in a reasonable or prudent manner.

Answer 49

Simple negligence

Question 50

involves a reckless disregard for the need to act in a reasonable manner regardless of the potential for harm.

Answer 50

Gross negligence

Question 51

is considered even more severe.

Answer 51

Willful and wanton negligence

Question 52

life insurance arrangements where investors persuade individuals (typically seniors) to take out new life insurance.

Answer 52

Stranger-Originated Life Insurance (STOLI) transactions

Question 53

are binding legal agreements and are enforceable by law.

Answer 53

Contracts of insurance

Question 54

NOT personal contracts

Answer 54

Life Insurance contracts

Question 55

an insured is entitled to coverage under a policy that a prudent person would expect it to provide. This principle is called?

Answer 55

Reasonable expectations

Question 56

In what way are insurance policies said to be aleatory

Answer 56

Involves the potential for the unequal exchange of value.

Question 57

The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a (n)?

Answer 57

Contract of adhesion

Question 58

XYZ Insurance Company gives direct authority to its producers to sell insurance through and agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?

Answer 58

Implied authority

Question 59

Which of the following relationships demonstrates insurable interest in the absence of economic interest? A. Lifelong friends B. Employees C. Marriage partners D. Business associates

Answer 59

C. Marriage partners

Question 60

The insurer's obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. This makes a policy a (n)?

Answer 60

Conditional Contract

Question 61

Which of these do NOT indicate the presence of insurable interest in a life insurance contract? A. Lifelong Friendship B. Marriage C. Blood- Related D. Co-owning a business

Answer 61

A. Lifelong Friendship

Question 62

An insurance contract many be voided if a misrepresentation found on the application is determined to be?

Answer 62

Material

Question 63

During the application, a statement made by an applicant that becomes part of the contract is considered to be a (n)?

Answer 63

Warranty

Question 64

Giving up a known right on a voluntary basis is called a (n)?

Answer 64

Waiver

Question 65

An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement? A. Meeting of the minds B. Offer C. Acceptance D. Equity

Answer 65

D. Equity

Question 66

Insurable interest involves what assumption?

Answer 66

One person benefits from another person's continued life.

Question 67

Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg's false statement is called a (n)?

Answer 67

Material Misrepresentation

Question 68

Which of the following would NOT have a restricted ability to enter into a contract? A. Mentally ill person B. Minor C. Person under the influence of alcohol D. Small employer

Answer 68

D. Small employer

Question 69

Statements made by an insured on an accident and health insurance application are considered to be?

Answer 69

Representations

Question 70

Which of these is true regarding the exchange of consideration among parties involved in an insurance contract? A. Required to be in currency B. Must be equal C. Can be unequal D. Must be certified by the state where transactions takes place/

Answer 70

C. Can be unequal

Question 71

The following are all elements of a valid contract EXCEPT? A. Consideration B. Offer and acceptance C. Competent D. Written Evidence

Answer 71

D. Written Evidence

Question 72

The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called?

Answer 72

Implied Authority

Question 73

The powers directly given to a producer in an agency contract are called?

Answer 73

Express

Question 74

An insurance company's failure to enforce a contract's provision is called a (n)?

Answer 74

Waiver