Chapter 10 Flashcards
Are life insurance contracts required by general rules of contract law to be written to be valid?
no, but laws in many states require insurance contracts to be written.
What 4 requirements must be met, in order to form an informal contract?
- the parties must mutually assent to the contract
- they must exchange legally adequate consideration
- they must have contractual capacity
- the contract must be for a lawful purpose.
how does one characterize an informal contract?
requires no special formalities to be valid
how does one characterize a unilateral contract?
- only one party - the insuere- makes legally enforceable promises
how does one characterize an aleatory contract?
one party- the policy owner- provides something of value to another party- the insuere- in exchange for a conditional promise
how does one characterize a contract of adhesion?
one party- the insurer- prepares and that the other party- the applicant- must accept or reject as a whole without any bargaining between the parties
How can the insurer accept an applicants offer?
- by issuing the policy that contains the same terms as those stated in the applicant’s offer
- delivering the policy to the applicant
How can an applicant accept an insurer’s counter offer? (ie in substandard assessments)
by accepting delivery of the policy and agreeing to the new contract terms that the insurer propsed.
When can an offeror withdraw his offer?
any time before the offerre has accepted the offer.
What is the minor age at which they may enter into a valid and binding insurance contract?
14-16 depending on the state
Who are the typical beneficiaries of a minor’s life insurance?
usually the minor’s parents or legal guardian, spouse, child, brother or sister
In common law provinces in Canada, an insurable interest exist between a person and who?
1) his children and grandchildren
2) spouses
3) anyone who contributes to his support or education
In Quebec, an insurable interest exist between a person and who?
- his spouse
- his descendants, his spouses’ decedents
- any one who contributes to his support or education
In malaysia an insurable interrest exist between a person and
1) spouse and his child or ward under age of majority
2) his employee
3) a person on whom he is wholly or partly dependent
Name some examples of business relationships that create an insurable interest
- partners of the bussiness
- employer to key person
- creditor into its debtors
Name some insurance law exceptions to consent requirements on insurance policies issued on insured’s. (ie who doesnt need consent) (3)
- parent > minor child
- spouse > spouse (some states)
- employers > employees (some states)
Insurance policies typically do not become effective until what 2 requirements are met? (think delivery)
- its delivered to the policyowner
2. the initial premium is paid.
What is a constructive delivery?
occurs when the policy was delivered and never actually reached the policy owner. The courts would still consider the policy to have been delivered.
What is the free look provision?
a 10 day period following delivery of the policy within which to cancel the policy and recieve a premium refund.
define what is in an entire contract provision
this defines the documents that consitute the contract between the insurer and the policy owner. The wording defines a closed vs. open contract
What is a closed contract?
a contract for which only those terms and conditions that are printed in-or attached to- the contract are considered to be part of the contract.
Individual life insurance policies typically include 6 provisions. Name them
- free look provision
- entire contract provision
- grace period provision
- incontestability provision
- misstatement of age provision
- reinstatement provision
A participating policy includes the 6 regular provisions and what additional provision?
dividend provision
A permanent policy includes the 6 regular provisions and what additional provisions
a nonforfeiture provision and a policy loan provisions
What is an open contract?
a contract that identifies the documents that constitute the contract between the parties, but the enumerated documents are not all attached to the contract.
who typically issues an open contract?
policies issued by fraternal insurers
What documents typically included in an open contract ?
- the policy and any riders and endorsements
- fraternal society’s charter, constitution and bylaws
- application for membership in the fraternal society
- decleration of insurability, signed by the applicant
A premium receipt that provides temporary insurance coverage states what? (3)
- when that coverage becomes effective
- the condition that must be met for the coverage to become effective
- when the coverage will end.
which is favoured when the terms of a premium reciept conflict with the terms of the policy applied for
The terms of the premium receipt control
What are the two basic types of receipts that are issued?
- conditional premium receipts
2. binding premium receipts
What is a condition?
a contractual term that limits a party’s promise. They are categorized as conditions precent or subsequent.
What is a condition precedent?
a condition that must occur in order to give rise to one party’s duty to perform a promise.
What is a condition subsequent?
a condition that, if it occurs, cancels one party’s duty to preform a promise.
What does a conditional premium receipt provide ?
temp-orary insurance coverage only if specified conditions are met.
What is an insurability premium reciept provide?
provides temporary insurance coverage on condition that the insurer finds the proposed insured to be insurable as a standard or preferred risk
What does an approval premium receipt provide?
temporary insurance coverage only when the insurer approves the proposed insured as a standard or better than average risk
A binding premium receiept provides what?
temporary insurance coverage that becomes effective on the date specified in the reciept. They provide insurance coverage without requiring that specific condition be met.
Temporary coverage under a binding premium receipt typically remains effective until the earliest of what 4 occurrences?
- the insurer issues the policy
- the insurer declines the application
- the insurer terminates or suspends coverage under the reciept
- a specified time- 45-60 days expires.
A valid annuity contact is created much like an informal contract, in the idea that which 4 requirements are met?
- mutual assent
- adequate consideration
- contractual capacity
- lawful person.
When is the annuity contract between the parties created? (official)
when the insurer issues the contract and delivers it to the contract owner and the contract owner pays the amount required as the first annuity consideration.
What are two provisions that individual annuity contracts typically have?
- entire contract provision (includes annuity contract, application, and any riders/endorsements)
- free look provision (10-30 days)
What must a producer obtain to sell variable products?
- obtain a state insurance license, + pass all required tests
- be a registered representative associated with a FINRA member
What is an agent of the insurer?
an insurance producer who markerts and sells life insurance products on behalf of the insurance company.
What do you call the writen contract between the insurer and the producer?
agency agreement, it spells out the rights and duties of the principal (insurer) and the agent (producer)
What are some common terms in an agency agreement?
- employee vs. independent contractor
- Authority
- limitations on the authority
- performance requirements
- compensation shedule
- termination provisions
What is defined in the Unfair Trade Practices Act?
defines certain practices as unfair and prohibits those practices in the business of insurance if they are committed glagrantly in conscious diregard of the Act or so frequently as to indicate a general business practice.
Name the activities that are prohibited by most state Unfair Trade Practices Act
- defamation
- false statements and entries
- unfair discrimination
- rebating
What is rebating?
a sales practice in which a producer offers a prospect an inducement to purchase a policy from the producer and the inducement is not offered to all applicant.
Name 4 specific misrepresentations prohibited by the states
- Life insurance must not be representated as ‘investments’ or ‘savings’
- premiums are not deposits
- policy dividends are not earnings or savings and guarantees may not be implied
- beneficiaries do not get death benefits and policy cash value unless its written
How does on open a mutual fund account?`
an investor typically must complete an application that the mutual fund prepares. May also be required to invest a stated minimum to pen the account.
the owner must sign the application and the investors inital vestment must accompany the application.
