Chapter 2 Flashcards
The following four essential elements must be contained in every contract for it to be legally valid and binding (enforceable):
Offer and acceptance
Consideration
Legal purpose
Competent parties
When an offer is answered by a counter-offer, the first offer is a
void
Void Contract
an agreement without legal effect.
voidable contract
an agreement that, for a reason satisfactory to the court, may be set aside by one of the parties to the contract.
Rescission
means the contract is made null and void.
Insurance contracts are aleatory. What does this mean?
This means there is an element of chance and potential for unequal exchange of value or consideration for both parties.
An insurance contract is either a
valued contract or an indemnity contract.
valued contract
pays a stated sum regardless of the actual loss incurred.
indemnity contract
is one that pays an amount equal to the loss.
policy
is a written contract in which one party promises to indemnify another against loss that arises from an unknown event.
Insurance applicants
make a full, fair, and honest disclosure of the risk to the agent and insurer.
Insurable interest can be defined as
the kind of financial interest a person must have in order to possess legally enforceable insurance coverage.
Insurance is a contract of
utmost good faith
A policy rider or endorsement
is a legal attachment amending a policy.
For a contract to be legally valid and binding, it must contain:
offer and acceptance,
consideration,
legal purpose, and
competent parties.
The applicant gives consideration in exchange for
the insurer’s promise to pay benefits.
For a contract to be enforceable, the contract must have a
legal purpose
Each state has its own laws governing the legality of _ and _
minors and the mentally infirm entering into contracts of insurance.
Insurance contracts are
aleatory
Aleatory means
there is a potential for unequal exchange of value or consideration for both parties.
Insurance contracts are contracts of
adhesion because the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and the insurer.
Any ambiguities or confusing language in a contract of adhesion involve
legal interpretations affecting contracts.
The insurer is considered _ if it has been licensed or authorized by the state in which it conducts business.
competent
Most insurance is considered to be a
a personal contract or personal agreement between the insurer and the insured.
Insurance contracts are unilateral this means_?
that only one party (the insurer) makes any kind of enforceable promise
An insurance contract is conditional because the?
insurer’s promise to pay benefits depend on the occurrence of an event covered by the contract.
As it relates to insurance, a warranty is a
statement made by the applicant that is guaranteed to be true in every respect.
A representation is a
statement made by the applicant that they consider to be true and accurate to the best of the applicant’s belief.
Concealment
the failure or neglect by the applicant to disclose a known material fact when applying for insurance.
Agent is a person who acts for another person or entity known as the ____
principal
Express authority
is the authority a principal deliberately gives to its agent.
Implied authority
is the unwritten authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the principal.
Apparent authority
is the appearance or assumption of authority based on the actions, words, or deeds of the principal.
waiver
the voluntary giving up of a legal, given right.
tort law
provide full compensation for proved harm.
A solicitor has the authority to
seek insurance applicants for a company but does not have any authority to bind coverage on behalf of a company to a customer.
There are several types of negligence, including
Simple negligence is the failure to act in a reasonable or prudent manner.
Gross negligence involves a reckless disregard for the need to act in a reasonable manner regardless of the potential for harm.
Willful and wanton negligence is considered even more severe.
Stranger-Originated Life Insurance (STOLI)
transactions are life insurance arrangements where investors persuade individuals (typically seniors) to take out new life insurance.
