Legal Concepts of Insurance Contracts

Question 1

Adhesion

Answer 1

A contract of adhesion describes a contract that has been prepared by one party ( the insurance company) with no negotiation between the applicant and insurer. The applicant adhears to the terms of the contract on a ¨ẗake it or leave it¨ basis.

Question 2

Agent

Answer 2

An agent represents themselves and the insurer at the time of the application.

Question 3

Aletory

Answer 3

An aletory contract represents the potential for an unequal exchange of value or consideration between both parties. Conditioned upon the occurrence of an event

Question 4

Apparent Authority

Answer 4

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

Question 5

Broker

Answer 5

A broker represents themselves and the insured (i.e the client) at the time of the application

Question 6

Competent Party

Answer 6

One who is capable of understanding the contract being agreed to.
All partied must be of legal age, mentally capable of understanding the terms and not under the influence of drugs / alcohol

Question 7

Concealment

Answer 7

The failure of an applicant to disclose a known material fact when applying for insurance

Question 8

Conditional

Answer 8

A conditional party describes the insurer´s promise to pay benefits depends on the occurrence of an event covered by the contract

Question 9

Consideration

Answer 9

Part of the contract setting forth the amount of initial and renewal premiums and frequency of future payments

Question 10

Applicants

Answer 10

Provide the insurer with a completed application and initial premium as consideration for insurance

Question 11

Estoppel

Answer 11

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

Question 12

Express Authority

Answer 12

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

Question 13

Fiduciary

Answer 13

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

A fiduciary is in a position of trust with regards to the funds of their clients and the insurer.

Question 14

Fraud

Answer 14

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

Question 15

Implied authority

Answer 15

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

Question 16

Indemnity Contracts

Answer 16

Attempt to return the insured to their original financial position

Question 17

Insurable Interest

Answer 17

The financial, economic, and emotional impact associated with a emotional impact associated with a person experiencing a specific loss.

A person has a insurable interest in a loss if they have more to gain by not suffering a loss.

Question 18

Insurance Policy

Answer 18

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

Question 19

Legal Purpose

Answer 19

An insurance contract must be legal in nature and not in opposition to public policy.

Question 20

Material misrepresentation

Answer 20

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

Question 21

Parol Evidence Rule

Answer 21

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

Question 22

Policy Rider or Endorsement

Answer 22

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

Question 23

Reasonable Expectations

Answer 23

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

Question 24

Representations

Answer 24

Statements made by the applicants that they consider to be true and accurate to the best of the applicants belief.

Question 25

Subrogation

Answer 25

The right for an insurer to persue are third party that caused an insurance loss to the insured.

Question 26

Unilateral

Answer 26

Unilateral contracts mean only one party. The insurer, makes nay kind of enforceable promise,

Question 27

Utmost Good Faith

Answer 27

Involves the belief that both the policy owner an 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.

Question 28

Valued Contract

Answer 28

Pays a stated sum regardless of the actual loss incurred.

Life insurance contracts are valued contracts

Question 29

Voidable Contract

Answer 29

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

Question 30

Waiver

Answer 30

The voluntary resignation of the legal, given right

Question 31

Warranty

Answer 31

A statement made by the applicant that is guranteed to be the in every respect. It becomes part of the contract and, if fraud to be untrue, can be grounds for revoking the contract

Question 32

Exam Tip 2

Answer 32

In an insurance contract, consideration (completed application in premium payments) is given by the applicant in exchange for the insurer¨s promise to pay benefits.

Question 33

Exam Tip 3

Answer 33

An insurance contract consists of 2 parties, the applicant and the insurer

Question 34

Stranger-Organized Life Insurance (STOLI)

Answer 34

Life insurance arrangments where investors persuade individuals (typically seniors) to take out a new life insurance policy, naming the investors as beneficiaries. It is sometimes called Investor Originated life insurance.

These arrangements are used to ciramvent state insurable interest statutes

Question 35

The Law of Agency

Answer 35

The law will view the agent and the company as one and the same when the agent acts within the scope of its authority. Additionally, an insurer may be liable to an insured for unauthorized acts of its agents when the agency contract is unclear about the authority granted.

Question 36

Tort Law

Answer 36

Provides fuel compensation for proved harm

Question 37

Law of Agency

Answer 37

The authority granted to an insurance porducer

Question 38

Policy Forms

Answer 38

The insurance carriers has become responsible for assembling the policy forms for the insured person(s)