Chapter 2 Keywords

Question 1

Define: Adhesion

Answer 1

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

Question 2

Define: Aleatory

Answer 2

An element of chance and potential for unequal exchange of value or consideration for both parties. An aleatory contract is conditioned upon the occurrence of an event

Question 3

Define: Concealment

Answer 3

The failure by the applicant to disclose a known material fact when applying for insurance. If the purpose of concealing information is to defraud the insurer (to obtain a policy that might not otherwise be issued if the information were revealed), the insurer may have grounds for voiding the policy

Question 4

Define: Conditional

Answer 4

The insurer’s promise to pay benefits depends on the occurrence of an event covered by the contract. The insurer’s obligations under the contract are conditioned on the performance of certain acts by the insured or the beneficiary

Question 5

Define: Consideration

Answer 5

The part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments. May also include the initial application

Question 6

Define: Estoppel

Answer 6

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

Question 7

Define: Fiduciary

Answer 7

The responsibility an insurance producer has to account for all premiums collected and provide sound financial advice to clients

Question 8

Define: Fraud

Answer 8

The deliberate knowledge of or intentional deceit with the objective of making false statements in order to be compensated by an insurance company

Question 9

Define: Hazard

Answer 9

any factor, condition, or situation that creates an increased possibility that a peril (a cause of a loss) will actually occur

Question 10

Define: Homogenous Exposure Units

Answer 10

Similar objects of insurance that are exposed to the same group of perils

Question 11

Define: Indemnity Contract

Answer 11

Contracts of indemnity attempt to return the insured to their original financial position

Question 12

Define: Insurance Policy

Answer 12

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

Question 13

Define: Material Misrepresentation

Answer 13

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

Question 14

Define: Moral Hazard

Answer 14

A hazard brought on by personal reputation, character, associates, personal living habits, financial responsibility, and environment, as distinguished from physical health, upon an individual’s general insurability

Question 15

Define: Morale Hazard

Answer 15

A hazard arising from indifference to loss because of the existence of insurance. Careless attitude

Question 16

Define: Parol Evidence Rule

Answer 16

When 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

Question 17

Define: Physical Hazard

Answer 17

physical or tangible conditions that make a loss more likely to occur