Chapter 5 - Contract Law - Has The Most Test Questions Flashcards
Elements of a contract
Legal purpose: can’t be contrary to the law
Competent parties: not under the influence, at least 15
Consideration for both parties: mutual consideration of money, property, services or promises. Exchanging something of value.
- For insruance consideration the insured gives 1) the premium 2) statements made in application. (Funny they don’t require payment of premium). The insurance company gives the promise to indemnify the insured.
Agreement: Offer + Acceptance: advertisements are mere INVITATIONS TO NEGOTIATE they are not an offer.
- Offer: the applicant submits an application accompanied by an premium payment or a policy is delivered to the applicant.
- many agents will not deliver a policy until the applicant has written and signed a STATEMENT OF CONTINUED GOOD HEALTH to verify that the applicants health has not changed.
-Acceptance:
—-Application submitted without a premium (mere offer to negotiate).
—-Application submitted with a premium we have an offer. Agent should promptly issue a receipt for the premium and submit the application to the company and begin the underwriting process. The company can then accept, reject or make a counter. If the policy is accepted, The agent can issue the policy and coverage begins once it is received.
-Using a “conditional receipt” to eliminate coverage delay. An agent can provide a conditional receipt coverage will begin on the date of application or the date of the medical exam, whichever is later. The policy doesn’t have to be delivered or a statement of good health. If the applicant doesn’t meet the requirements the receipt is meaningless.
Truth or Consequences
Statue of limitations: 2 years to catch fraud in the application or medical exam.
Material Fact: information that would have caused the insurer to not issue the policy at all. Lying about your job, or your health is MATERIAL. Accidentally misspelling your name or street address is IMMATERIAL.
Warranty: Used to exist, guaranteeing that the information the insured provides is true.
Representation: statement regarding a martial fact that the applicant believes is true but can’t guarantee. Thus the applicant does not provide a warranty.
Misrepresentation: is an intentional misstatement regarding a material fact. This is fraud
Concealment: Intentionally telling a lie or partially hiding the truth. Omitting something entirely. This is fraud.
Characteristics of insurance contracts
Conditional: almost all contracts. Means certain future conditions must be met.
Unilateral: meaning only one party, insurer, has made a legally enforceable promise. Insurer couldn’t sue the member for not making payments.
Adhesion: Insured is stuck with what the contract says. Non negotiable.
Aleatory: one party has potential to receive dramatically different levels of benefits. All insurance contracts are this.
Waiver/Estoppel/Provision/Rider; Key terms.
Waiver: Voluntary surrendering of a right.
Estoppel: once you waive a right, you have no grounds to complain about the consequences.
Provision: any clause in the policy, interchangeable terms.
Riders: are optional provisions not included in the original policy but added later. Address issues not covered elsewhere in the policy. Also called and EXTENSION OR ENDORSEMENT.
Ownership Clause
Owner: controls all aspects of an insurance policy. Can cancel, change at any time. The Ownership Clause specifies the owners rights.
First Party Ownership: if the insured and policy person are the same.
Third Party Ownership: person who owns the policy is not the person insured. Life insurance
Required Signatures
With first party, the applicant/insured signs.
With third party the applicant and the insured both sign.
Minors parents signs
The agent will also sign the contract, NOT the beneficiary
Insurable interest requirement
Concept that in order to be Insurable, a loss must be economic.
Example of people with Insurable interests
Spouses, close relatives, creditors or debtors, employees, business partners
With L/H Insurance the interest must not need to exists at the time of the loss. If someone gets divorced after a life insurance policy was signed and later but dies, the life policy would still be in tact.
Uniforms Policy Provision, Laws Required Provision
-Clauses/provisions in a contract
Insuring Clause: identifies the parties, the insurers promise to pay, covers benefits, warns of any limitations or exclusions.
Consideration Clause: states that the insured gives 2 items of considerations, the premium and the statements in the application
Entire Contract Clause: policy consists of only the policy and the attached application. Protects agents making promises outside of the contract or the insurer trying to impose changes to the contract.
Free Look Clause: also called Right to Exam Clause, gives insureds at least 10 days after delivery of the policy to review and potentially cancel the policy. The entire premium would be refunded without interest. Medicare policies get 30 days. You are covered during the free look period.
Grace Period. Clause: delays the termination of a policy if you forget to pay the premium. Usually 31 day grace period. The insurer will be able to deduct the premium plus interest from the claim payment.
Contestable Clause: you can contest the information in the application before 2 years and void the policy. With Health insurance, fraud or misrepresentation is always contestable, no year limit.
***Incontestable Clause: Also called Time Limit on Certain Defenses Provision - cant contest after two years for accidental misinformation. Fraud does have a 2 year limit for Life insurance.
-Misstatement of Age or Gender Clause - not included after the two years. If a gender or age (gender is not included in Health Insurance) was misrepresented the insurer WILL simply change the premium and benefit if it is passed the two years.
Reinstatement Clause: If you policy lapses, you can be reinstated to the original premium at the age/time you signed up without a fee. You would have to pay the missed premium, submit a reinstatement application and provide proof of insurability (physical or medical exam)
Lawsuit Clause: insured must wait 60 days after submitting a claim prior to filing any lawsuit. A lawsuit must be filed within 3 years.
Physical Exam and Autopsy: the insurer can do as many physical exams but only 1 autopsy.
Premium Receipts
Non binding: policy wont be effective until the policy is delivered
Conditional Receipt: if the applicant dies prior to policy delivery, the insurer will pay the claim if the applicant had taken the physical and would have met the underwriting requirements.
Binding Receipt: provides coverage immediately, while they do underwriting and review the application.
Premium receipts are signed by producer and the delivery receipt is signed by applicant.
