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HS324 Life Insurance Law > Focus Terms > Flashcards

Focus Terms Flashcards

1
Q

Legislative Law L1

A

Enacted by legally constituted governmental bodies w/ power and authority to enact laws; legislatures enact statutes, while agencies issue regulations

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2
Q

Life Insurance Law L1

A

Life insurance law is derived from general contract law

regulated by states; vast differences in laws/interpretation of law

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3
Q

Case Law L1

A

Also called common law; settles disputes b/t parties

Flexible in form/application

American case law derived from the common law of England

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4
Q

Supremacy Clause L1

A

As the supreme law of the land, the federal law = higher authority than any state constitution or law; states are supreme where the federal constitution is silent

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5
Q

Common Law L1

A

England

Basis of American legislative and case law

Courts seek legislative answers or prior cases (precedents); if none exists they make an original ruling (case law)

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6
Q

Civil Law L1

A

Rome; also basis of Louisiana Law

Enactment of comprehensive code (general principles of law) applied to facts of a case

Little influence by precedent (flexible and limited)

Will exert little influence on similar cases arising in the future

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7
Q

Legal Remedy L1

A

An attempt to seek monetary damages for failure to perform a contract as written (ex civil suit)

heard before a jury

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8
Q

Equitable Remedy L1

A

Enforces performance in a contract, modifies its terms, or excuses performance of a contract that is in dispute; makes things right

heard before judge

Ex. Rescission, Restitution, Reformation of contract, Bills of interpleader, Declaratory Judgement

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9
Q

State Courts L1

A

All states have one ore more courts of original jurisdiction and one or more courts of appeal

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10
Q

Center-of-Gravity Theory L1

A

Gives emphasis to the law of the state that has the most significant contracts (connections) w/ the matter in dispute

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11
Q

Requirements for a Contract (5) L1
Hint: O.A.C.CPs.LF

A
  1. Offer = willingness to enter bargain
  2. Acceptance = meeting of the minds or manifestation of mutual assent
  3. Consideration = something of value
  4. Competent Parties = capacity to contract
  5. Legality of Form = follow legal requirements
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12
Q

Unilateral Contract L1

A

only one party makes an enforceable promise the insurer; if bilateral then policyowner would make promise as well but no promise by insured that premiums will be paid; insurer promises to pay DB

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13
Q

Aleatory Contract L1

A

unequal exchange, uncertain event, element of chance

commutative is opposite where equal amounts exchanged

aleatory could lead to wagering

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14
Q

Conditional Contract (2) L1

A
  1. Conditions Precedent = Life Insurance; an act or event that must occur before duty is imposed and a right exists (premium payments first and subsequent, completed application, medical and other requirements to put policy in effect)
  2. Conditions Subsequent = an act or event that will terminate an existing right (death by policy exclusion or file death claim
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15
Q

Contract of Adhesion L1

A

Not negotiated, accepted, or rejected; not amended by non drafting party

any ambiguity in terms favors the policyowner or beneficiary

policyowner accepts or rejects the contract; cannot alter contract

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16
Q

The Application (3) L2
Hint: MA.PER.ECP

A
  1. Mutual Assent = offer and acceptance must be present for a contract to exist
  2. Parol Evidence Rule = all preliminary oral statements are superseded by the written contract (policy); once a policy is issued, the entire contract is in the policy; no “inclusion by reference” is allowed
  3. Entire Contract Provision = the application is attached to the policy to create the entire contract
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17
Q

Company Consideration L2

A

“promise to pay” the DB, plus other policy promises (nonforfeiture, reinstatement, APL, etc.)

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18
Q

Promisee (policyowner) Consideration L2

A

application and first premium

**not renewal premiums

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19
Q

Wagering L2

A

speculation is to be controlled by an insurable interest which is required in all jurisdictions; an aleatory contract offers a potential large return for a small premium (moral hazard)

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20
Q

Representations L3

A

Generally, an oral/written statement at the time or before the making of the contract

Representations are not part of the contract in general contract law

Some statements may be statements of fact or opinion

Statements are not guaranteed to be true; they must only be substantially true when they are made

In life insurance contracts, only written statements become a part of the entire contract, also includes policy and attached application

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21
Q

Material Misrepresentation L3

A

burden of proof on insurer

Material = influences insurer into contract it would not have made or would have made on different terms if it had known the truth

The aggrieved party (the insurer) can sue to recover damages or rescind the contract

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22
Q

Rescission L3

A

Equitable remedy

Termination of contract (void from start)

w/in reasonable time after discovery of misrepresentation

Rescission requires adjudication (court hearing); can be suit brought by insurer or defense in court by insurer

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23
Q

Voidable L3

A

the offended party can disaffirm the contract and thus terminate the agreement, or they can affirm and enforce the contract (such as an illegal contract issued by an unauthorized insurer)

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24
Q

Void L3

A

contact does not exist

unenforceable by either party, void from start; never happened

no “meeting of the minds”

insurer returns all premiums paid

neither party can enforce or defend; the incontestable clause is irrelevant

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25
Q

Materiality L3

A

Reflects the insurer’s decision to accept risk it would not have made had it known the true statement of material fact or the terms under which the insurer made the decision

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26
Q

Prudent Insurer Standard L3

A

outside experts provide objective standards

uses judgement of industry experts

used in majority of jurisdictions

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27
Q

Individual Insurer Standard L3

A

Uses insurer’s own practices in terms of how it decided on similar cases

difficult for the beneficiary to object since information comes from company files and testimony

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28
Q

Concealment L3

A

nondisclosure; failure of an applicant to communicate knowledge of a material fact that the insurer does not possess

misrepresentation by silence in insurance law

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29
Q

Bad Faith Suit (4) L3

A

an insurer may be subject to a bad fait suit if it:

  1. creates unfair claim processing procedures
  2. uses abusive tactics
  3. improperly delays
  4. fails to investigate
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30
Q

Waiver L3

A

a voluntary and intentional giving up of a known right

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31
Q

Estoppel L3

A

a party loses the ability to assert a defense d/t prior actions inconsistent w/ that defense

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32
Q

Equitable Estoppel L3

A

representation of past or present actions or facts relied upon by another party so that changing one’s position would be unfair

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33
Q

Legal, or Promissory, Estoppel L3

A

involves future conduct (promise); one person reasonably relied on a statement of future conduct (promise); it would be unfair to allow the first person to change their conduct (promise); if you make a promise, you can’t change your mind

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34
Q

Election L3

A

The act of choosing b/t two mutually exclusive alternative rights or privileges

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35
Q

Incontestable Clause L4

A

Limits time (2 yrs max) company to rescind policy based on misrepresentation of material facts

waives company’s rights to dispute the validity of the contract after a certain period; NOT the terms/conditions

Required by law in all states

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36
Q

Situations NOT protected by the incontestable clause (no time limit) (3) L4

A
  1. A lack of insurable interest
  2. Impersonation at physical exam
  3. The applicant intended to murder the insured
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37
Q

Monahan Decision L4

A

an action to deny a claim must occur w/in the contestable period

contestable period does not end at the insured’s death but continues for the benefit of the beneficiary until the contestable time period ends

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38
Q

Reformation L4

A

Reissue the policy correctly when a clerical error or substantial but obvious mistake is discovered

A reformation CANNOT be made if fraud was involved in the contract

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39
Q

Policy Face Page (5) L4

A
  1. Name of insurer
  2. Policy details: insured, policyowner, face amount, policy number, policy date, date of issue, and type of insurance provided
  3. Free look provision
  4. Insuring Clause (insurer’s promise to pay)
  5. Signature of company officer
40
Q

Required Policy Provisions (9) L4

A
  1. Grace Period
  2. Policy Loan
  3. Incontestable Clause
  4. Divisible Surplus
  5. Entire Contract
  6. Reinstatement
  7. Misstatement of Age/Sex
  8. Nonforfeiture provisions
  9. Settlement Options
41
Q

Mailbox Rule L5

A

if a renewal premium is mailed and properly stamped by a date such that the owner could “reasonably expect the post office to deliver it before the premium due date” it will NOT be considered late, even if the post office delivers it late or not at all

42
Q

Property L5

A

the exclusive right of ownership; the right to possess, enjoy, transfer, or dispose of a thing or an interest

43
Q

Real Property L5

A

Real estate; land and those things that are part or attached to the land

44
Q

Personal Property L5

A

property that is NOT land or attached to land

two types

tangible personal property and intangible personal property

45
Q

Tangible Personal Property L5

A

Clothing or jewelry; something that has physical characteristics

46
Q

Intangible Personal Property L5

A

ownership right is evidenced by a legal document such as ownership in a corp (stock certificate); ownership interest is a right independent of a physical document; the right itself cannot be seen or touched

47
Q

Intangible Property L5

A

referred to in law as chose (pronounced “shows”) or “thing” in action

Life insurance is a chose in action and represents the intangible personal property rights in the policy

Tangible property is a chose in possession; capable of physical possession and transfer by delivery

48
Q

Life Insurance Policyowner Rights (7) L5

A
  1. Surrender the policy
  2. Assign the policy
  3. Designate and change the beneficiary
  4. Obtain a policy loan (if CV present)
  5. Select and change dividend options (if participating)
  6. Select and change investment options (if variable)
  7. Select a settlement option
49
Q

Common Law Property L5

A

Based on English Common law developed through case law by English courts

Used in 41 states; basis of U.S. legal system

Marital status has no direct effect on ownership interest, including life insurance, in common law states

Proceeds pass by will, intestacy, joint ownership, or operation of law

50
Q

Community Property Law L5

A

Laws exist only where they have been enacted into law by state legislature

Based on France’s and Spain’s law

Used in 9 states

Property acquired in marriage is community property; each spouse has undivided 1/2 interest

Exceptions - gifts, property owned before marriage, inheritance, and property acquired by separate funds

51
Q

Exoneration Statutes L5

A

Protect the INSURER from paying proceeds or other policy benefits twice

Insurer not relieved from all liability

If an unknown community property right emerges and the insurer had no previous knowledge

If insurer pays proceeds under terms of contract, they will not be held liable to community property interests

**Derived from civil law and applies only in community property states

52
Q

Declaratory Judgement L5

A

declares obligations and rights of parties when rights and duties are in bout; parties can then move forward to resolve the dispute

53
Q

Interpleader L5

A

Has a court decide who is entitled to funds when property is claimed by 2 or more people

Insurer files a bill of interpleader, naming claimants as defendants

Insurer pays proceeds to court and is dismissed from case

Purpose is to avoid paying proceeds to more than 1 party

54
Q

Reformation L5

A

Discover the intent of parties and rewrite or reform the contract to express actual intent; two grounds:

  1. Mistake
  2. Misrepresentation
55
Q

Rescission L5

A

Cancel the contract d/t material misrepresentation in the contract

56
Q

Three Requirements for Equitable Court Case L5

A
  1. No adequate remedy at law
  2. Clean hands
  3. No unnecessary delay
57
Q

Presumption of Death (4) L6

A
  1. Missing for a fixed period of time (usually 7 years)
  2. No reasonable explanation for the absence
  3. Total absence of communication
  4. Diligent and unsuccessful search has been conducted
58
Q

Release L6

A

Intentional giving up of right for a consideration

The insurer requires a release from the beneficiary as part of a negotiated settlement of claim

To be enforceable, there usually must be an exchange/consideration

59
Q

Compromise Settlement L6

A

The existence of a right to proceeds is in dispute

The insurer may use this when the insured disappeared and the presumption of death is not fully satisfied

60
Q

Reappearance of Missing Insured L6

A

A person who had previously been declared dead is discovered alive

If proceeds were paid in full, the insurer can recover the proceeds plus interest

If a compromise settlement was paid, there is no recovery of the amount paid

61
Q

Death Claim Payment - Beneficiary kills Insured L6

A

A beneficiary cannot receive proceeds if the killing was wrongful and intentional

62
Q

Reasonable Expectations Doctrine - Majority View L6

A

If language is clear, the contract is enforced as written

If there is ambiguity, the benefit of the doubt goes to the non-drafting party (policyowner)

63
Q

Reasonable Expectations Doctrine - Minority View L6

A

Reasonable expectations of the non-drafting party (policyowner) in a contract of adhesion will control contract interpretation even if contract language is clear and unambiguous

Extremely favorable to the policyowner in an effort to impose liability on the insurer

64
Q

Revocable Beneficiary L6

A

Can be unilaterally changed by policyowner

Has a mere expectancy of proceeds

Change of beneficiary may not be allowed (is precluded) if the policy is collaterally assigned or when a court order in a divorce case requires the former spouse as the beneficiary

65
Q

Irrevocable Beneficiary L6

A

Conditionally vested - must survive the insured

Beneficiary must consent to any change that affects the DB

Policyowner does NOT have the unilateral right to change the beneficiary

Owner cannot act in any way that will diminish proceeds w/out the consent of beneficiary

No loan, no dividend, no assignment w/out the beneficiary’s consent - limited ownership rights

66
Q

Per Capita L6

A

New York Rule

Surviving named beneficiaries share equally; per head

67
Q

Per Stirpes L6

A

Connecticut rule

Heirs of deceased beneficiary take that beneficiary’s share

68
Q

Ways of preventing inclusion of proceeds in estate (3) L6

A
  1. Owner not the insured
  2. Transfer policy to another person or trust (3-year rule)
  3. Absolute assignment (3-year rule)
69
Q

Simultaneous Death (Common Disaster Clause) L7

A

order of death cannot be determined

insured presumed to survive beneficiary

proceeds payable to insured’s estate or named contingent beneficiary

70
Q

Uniform Simultaneous Death Act L7

A

Life insurance proceeds are distributed as if the insured survived the beneficiary if the order is unknown, the same as in a common disaster clause

If the order of death is known, the order cannot be changed

71
Q

Delayed-Payment Clause L7

A

Beneficiary must survive the insured by a specified period of time such as 10/14/30 days

Used to avoid problems of short term survivorship of beneficiary after insured’s death and proceeds passing through two estates

72
Q

Changing Beneficiaries L7

A

Policyowner may change to anyone

No insurable interest required

Must be in writing

Policy normally does NOT need to be endorsed

If there is an irrevocable beneficiary, they must consent to the change

Collateral assignment and divorce court orders may limit the policyowner’s ability to change beneficiaries

73
Q

Minor Beneficiaries L7

A

Lacks legal capacity; insurer requires minors to have a guardian

Minor cannot give binding release to the insurer when receiving proceeds

Upon attaining majority, minor might repudiate the release and demand payment again

A minor child cannot give release to change an irrevocable beneficiary

Age 18 is the age of majority in 44 states

74
Q

Trust as Beneficiary L7

A

A trustee may be a natural person or a corporation

the trust agreement must exist at the time the trustee is named the beneficiary in case the insured dies

75
Q

American Bankers Association (ABA) Assignment Form L7

A

Clearly sets forth the rights transferred and not transferred to the assignee

Rights include surrendering policy for cash value and right to exercise all surrender options

76
Q

Statutory Protection Against Creditors L8

A

All states provide protection of life insurance from claims of creditors; not all states protect cash values

Generally, proceeds are exempt from claims of the insured’s creditors as long as they are identifiable as proceeds

77
Q

Distributive Statute L8

A

Proceeds payable to insured’s estate pass to their spouse/children free of claims against the state

Seldom protects against claims of beneficiary’s creditors

78
Q

Procedural Statute L8

A

protection from insured’s and beneficiary’s creditors

amount of insurance limited

no protection for cash values

79
Q

New York Statute L8

A

Protects cash value and proceeds from claims of insured’s creditors

No protection to beneficiary’s creditors

Majority of states have enacted similar legislation

80
Q

Comprehensive Statute L8

A

All benefits exempt w/out limitation from claims of creditors of insured/beneficiary/third party owner/any other person or organization

unlimited protection of all benefits payable to anyone from all creditors

81
Q

Spendthrift Statute L8

A

Only protects the proceeds held under a settlement agreement (installment payout) from claims of the beneficiary’s creditors

82
Q

Express Authority (Contract) L8

A

Powers specifically given to the agent by the principal orally or in writing, most often in a contract and/or manual

83
Q

Implied Authority (Incidental) L8

A

Powers not specifically given by the principal to the agent but that are necessary to exercise powers expressly given

it is implied that the agent has authority to perform incidental acts to those expressly given

84
Q

Apparent Authority (Reasonable Belief) L8

A

The public reasonably believes the agent possesses authority based on the actions of the principal

Ex. the agent repeatedly grants permission for the policyowner to pay the premium late

85
Q

An Agent’s Three Duties to the Principal L8

A
  1. Duty of loyalty
  2. Duty to obey
  3. Duty to exercise reasonable skill, care, and diligence

**Agent is liable for damages for acts that violate duties to principal

86
Q

An Agent’s Three Levels of Duty to Clients L8

A
  1. Generalist Level = skill, care, good faith, and diligence
  2. Dual Agency Level = fiduciary duty to principal-agent of insurer and insured
  3. Expert = expertise and high level of professionalism
87
Q

Securities Act of 1933 L9

A

full and fair disclosure

prospectus requirement

88
Q

Investment Company Act of 1940 L9

A

registration, holding out, advertising and sales literature

defines investment advisor engaged in business of giving advice to others about investing for compensation

89
Q

NAIC L9

A

National Association of Insurance Commissioners

provides minimum standards and guidelines to create uniformity b/t states

models laws and regulations suggested to be adopted by each state

90
Q

NAIC Model Unfair Trade Practices Act L9

A

prohibits false advertising

untrue, deceptive, or misleading advertising

focus is on misrepresentation

prohibits unfair trade practices

91
Q

Invasion of Privacy Torts L9

A

Violation of one’s right to be left alone

92
Q

Intestacy L9

A

Dying w/out a will

state laws control distribution of property and vary by state

93
Q

Power of Attorney (POA) L9

A

All powers of attorney terminate on death

Powers can be limited or general

A general POA cannot delegate the power to create or alter a will on behalf of the principal

A competent principal can terminate existing or springing powers at any time

A POA prevents interference from another party

94
Q

Simple POA L9

A

terminates if principal becomes disabled or incompetent

95
Q

Durable POA L9

A

remains in effect if principal becomes incompetent, no need for court intervention

principal or attorney-in-fact can terminate at any time

for Health Care: the attorney-in-fact can make medical decisions if the principal is unable to do so

96
Q

Springing Durable POA L9

A

Becomes effective only after the occurrence of specified events, such as the loss of physical or mental competency

creates powers when they are needed and not before

97
Q

Ethical Conduct L9

A

Ethical behavior is a core value

Ethical codes exist to elevate human behavior

Earning professional designations exemplifies professionalism

HS324 Life Insurance Law (3 decks)

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