Legal Concepts of the Insurance Contract

Question 1

At what point does an informal contract become binding?
<> When one party makes an offer and the other party accepts the offer
<> When one party makes the required payment
<> When one party makes an invitation and the other makes an offer
<> When an offer is made by one party and the other party rejects the offer and makes a counteroffer

Answer 1

~When one party makes an offer and the other party accepts the offer

Question 2

Which of these is considered a statement that is assured to be true in every respect?
<> Representation
<> Estoppel 
<> Warranty
<> Guarantee

Answer 2

~Warranty

A warranty is a statement that is considered guaranteed to be true

Question 3

When must insurable interest exist for a life insurance contract to be valid?
<> When the insured dies
<> Throughout the entire length of the contract
<> Inception of the contact
<> During the contestable period

Answer 3

~Inception of the contact

Insurable interest must only exist at the inception of the contract

Question 4

Which of these is NOT considered to be an element of an insurance contract?
<> negotiating 
<> consideration
<> acceptance
<> the offer

Answer 4

~ negotiating

The elements of an insurance contract do not include negotiating

Question 5

The consideration clause of an insurance contract includes:
<> the named beneficiaries
<> the schedule and amount of premium payments
<> a summary of the coverage provided
<> the buyer’s guide

Answer 5

~ the schedule and amount of premium payments

The Consideration clause of a Life or Health policy includes the schedule and amount of premium payments

Question 6

Life and health insurance policies are:
<> Multi'lateral contracts
<> Unilateral contacts
<> Bilateral contracts 
<> Non-lateral contracts

Answer 6

~Unilateral contacts
Life and Health insurance policies are considered unilateral contracts because one party makes a promise, and the other party can only accept by performance

Question 7

Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange of unequal values reflects which of the following insurance contact features?
<> Adhesion
<> Aleatory 
<> Unilateral
<> Consideration

Answer 7

~Aleatory
Insurance contracts are aleatory in that the amount the insured will pay in premiums is unequal to the amount that the insurer will pay in the event of a loss.

Question 8

When must insurable interest be present in order for a life insurance policy to be valid?
<> Within the incontestability period
<> When the insured dies
<> When the application is made
<> Before the insured dies

Question 8

When must insurable interest be present in order for a life insurance policy to be valid?
<> Within the incontestability period
<> When the insured dies
<> When the application is made
<> Before the insured dies

Answer 8

~When the application is made

Insurable interest must exist when the application is made for it to be valid

Question 9

Insurance policies are considered aleatory contracts because?
<> Both parties consent to the contract
<> performance is conditioned upon a future occurrence
<> the contract is voidable upon proof of fraud
<> they are “take it or leave it” contracts

Answer 9

~ performance is conditioned upon a future occurrence
Insurance contracts are aleatory. This means there is 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 10

Who makes the legally enforceable promises in a unilateral insurance policy?
<> Applicant
<> Beneficiary
<> Insured 
<> Insurance company

Answer 10

Insurance company

Under a unilateral insurance policy, the Insurance company makes the legally enforceable promises

Question 11

What is the consideration given by an insurer in the Consideration clause of a life policy?
<> Promise to not raise premiums
<> Promise to never cancel coverage
<> Promise to pay a death benefit to a named beneficiary
<> Promise to accept an insured’s assignment of benefits

Answer 11

~Promise to pay a death benefit to a named beneficiary

Consideration is given by the insurer by promising to pay a death benefit to a named beneficiary

Question 12

Which of these is NOT a type of agent authority?
<> Principal 
<> Express
<> Implied
<> Apparent

Answer 12

~Principal
Agent authority is what an agent is authorized to do on behalf of his company. The three types of agent authority include: express, implied, and apparent authority

Question 13

E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as the primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to?
<> The dissolved partnership 
<> E's estate
<> E's family 
<> F

Answer 13

~ F
In this situation, the proceeds from E’s life insurance policy will go to F. Insurable interest only needs to exist at the time of application

Question 14

A policy of adhesion can only be modified by whom?
<> The primary beneficiary
<> The insurance company
<> The applicant 
<> The agent

Answer 14

~The insurance company

A policy of adhesion is best described as a policy which only the insurance company can modify

Question 15

Which of these require an offer, acceptance, and consideration?
<> Contract
<> estoppel
<> Warranty
<> Representation

Answer 15

~ Contract

Offer, acceptance, and consideration are all elements of a contract

Question 16

A life insurance policy would be considered a wagering contract WITHOUT:
<> Agent solicitation 
<> constructive delivery
<> premium payment 
<> insurable interest

Answer 16

~insurable interest

Without insurable interest, a life insurance policy would be considered a wagering contract

Question 16

A life insurance policy would be considered a wagering contract WITHOUT:
<> Agent solicitation 
<> constructive delivery
<> premium payment 
<> insurable interest

Answer 16

~insurable interest

Without insurable interest, a life insurance policy would be considered a wagering contract

Question 17

What is a warranty?
<> Guarantees that an insurance company will pay benefit
<> is a statement believed to be true to the best of one’s knowledge
<> can not be used to void the contract
<> is a statement guaranteed to be true

Answer 17

~ is a statement guaranteed to be true

A warranty is a statement guaranteed to be true

Question 18

The part of a life insurance policy guaranteed to be true is called a(n):
<> exclusion 
<> waiver
<> representation
<> warranty

Answer 18

~Warranty
Warranties are statements that are considered literally true. A warranty that is not literally true in every detail, even if made in error, is sufficient to render a policy void

Question 19

At what point does an informal contract become binding?
<> When one party makes the required payment
<> When one party makes an offer and the other party accepts that offer
<> When an offer is made by one party and the other party rejects the offer and makes a counteroffer
<> When one party makes an invitation and the other makes an offer

Answer 19

~When one party makes an offer and the other party accepts that offer
An informal contract becomes binding when one party makes an offer and the other party accepts that offer.

Question 20

In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contact is this?
<> Estoppel
<> Unilateral
<> Adhesion 
<> Aleatory

Answer 20

~ Unilateral

Insurance contracts are unilateral. This means that only one party (the insurer) makes any kind of enforceable promise.