Chapter 2 Flashcards
describes a contract that has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. The applicant adheres to the terms of the contract on a “take it or leave it” basis when accepted.
Adhesion
represents themselves and the insurer at the time of application.
Agent
contract presents the potential for an unequal exchange of value or consideration between both parties. contracts are conditioned upon the occurrence of an event.
Aleatory
the appearance of the insurer providing the agent authority to perform unspecified tasks based on the agent-insurer relationship.
Apparent Authority
represents themselves and the insured (i.e., the client or customer) at the time of application.
Broker
one who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms and not influenced by drugs or alcohol.
Competent Party
the failure of the applicant to disclose a known material fact when applying for insurance.
Concealment
policy describes the insurer’s promise to pay benefits depends on the occurrence of an event covered by the contract.
Conditional
the part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.
Consideration
*Applicants provide the insurer with a completed application and initial premium as consideration for insurance.
the legal impediment to one party denying the consequences of its own actions or deeds if such actions or deeds result in another party acting in a specific manner or if certain conclusions are drawn.
Estoppel
The explicit authority granted to the agent by the insurer, as written in the agency contract.
Express Authority
The responsibility an insurance producer has to account for all premiums collected and provide sound financial advice to clients. in a position of trust with regards to the funds of their clients and the insurer.
Fiduciary
includes the deliberate knowledge of or intentional deceit to make false statements to be compensated by an insurance company.
Fraud
an authority not explicitly granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities.
Implied Authority
Contracts attempt to return the insured to their original financial position
Indemnity contract
is the financial, economic, and emotional impact associated with a person experiencing a specified loss. a loss if they have more to gain by not suffering the loss.
Insurable Interest
means an insurance contract must be legal in nature and not in opposition to public policy
Legal Purpose
a written contract in which one party promises to indemnify another against loss that arises from an unknown event.
Insurance Policy
a false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk.
Material misrepresentation
involves parties put their agreement in writing, all previous verbal statements come together in that writing, and a written contract cannot be changed or modified by parol (oral) evidence.
Parol Evidence Rule
an amendment added to an insurance contract that overrides terms in the original policy. May add or remove coverages, change deductibles, or revise any other policy feature.
Policy rider or endorsement
means the insured is entitled to coverage under a policy that any sensible and prudent person would expect it to provide
Reasonable expectations
are statements made by the applicant that they consider to be true and accurate to the best of the applicant’s belief.
Representations
the right for an insurer to pursue a third party that caused an insurance loss to the insured.
Subrogation
Contracts mean only one party, the insurer, makes any kind of enforceable promise
Unilateral
involves the belief that both the policyowner and 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.
Utmost Good Faith
pays a stated sum regardless of the actual loss incurred
Valued contract:
*Life insurance contracts are valued contracts.
is an agreement that, for a reason satisfactory to the court, may be set aside by one of the parties in the contract.
Voidable Contract
the voluntary giving up of a legal, given right.
Waiver
a statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract.
Warranty
the insurer binds itself to pay a certain sum upon the death of the insured
life insurance contract
the insurer binds itself to pay a certain sum for accidental injury, sickness, or disability
health insurance
the insurer agrees to pay for loss sustained to the insured’s covered property
property insurance
the insurer agrees to pay for losses or damages caused by the insured
casualty insurance
two parties to an insurance contract
the insured and the insurer.
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 ?
void
is simply an agreement without legal effect
A void contract
an agreement that, for a reason satisfactory to the court, may be set aside by one of the parties to the contract.
A voidable contract
means the contract is made null and void
Rescission
is either a valued contract or an indemnity contract
An insurance contract
written contract in which one party promises to indemnify another against loss that arises from an unknown event.
A policy
are required to make a full, fair, and honest disclosure of the risk to the agent and insurer
Insurance applicants
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.
Insurance contract
is considered competent if it has been licensed or authorized by the state in which it conducts business.
The insurer
is considered to be a personal contract or personal agreement between the insurer and the insured.
Most insurance
to provide full compensation for proved harm.
The concept of tort law
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.
A solicitor
the failure to act in a reasonable or prudent manner.
Simple negligence
involves a reckless disregard for the need to act in a reasonable manner regardless of the potential for harm.
Gross negligence
is considered even more severe.
Willful and wanton negligence
life insurance arrangements where investors persuade individuals (typically seniors) to take out new life insurance.
Stranger-Originated Life Insurance (STOLI) transactions
are binding legal agreements and are enforceable by law.
Contracts of insurance
NOT personal contracts
Life Insurance contracts
an insured is entitled to coverage under a policy that a prudent person would expect it to provide. This principle is called?
Reasonable expectations
In what way are insurance policies said to be aleatory
Involves the potential for the unequal exchange of value.
The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a (n)?
Contract of adhesion
XYZ Insurance Company gives direct authority to its producers to sell insurance through and agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?
Implied authority
Which of the following relationships demonstrates insurable interest in the absence of economic interest?
A. Lifelong friends
B. Employees
C. Marriage partners
D. Business associates
C. Marriage partners
The insurer’s obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. This makes a policy a (n)?
Conditional Contract
Which of these do NOT indicate the presence of insurable interest in a life insurance contract?
A. Lifelong Friendship
B. Marriage
C. Blood- Related
D. Co-owning a business
A. Lifelong Friendship
An insurance contract many be voided if a misrepresentation found on the application is determined to be?
Material
During the application, a statement made by an applicant that becomes part of the contract is considered to be a (n)?
Warranty
Giving up a known right on a voluntary basis is called a (n)?
Waiver
An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement?
A. Meeting of the minds
B. Offer
C. Acceptance
D. Equity
D. Equity
Insurable interest involves what assumption?
One person benefits from another person’s continued life.
Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg’s false statement is called a (n)?
Material Misrepresentation
Which of the following would NOT have a restricted ability to enter into a contract?
A. Mentally ill person
B. Minor
C. Person under the influence of alcohol
D. Small employer
D. Small employer
Statements made by an insured on an accident and health insurance application are considered to be?
Representations
Which of these is true regarding the exchange of consideration among parties involved in an insurance contract?
A. Required to be in currency
B. Must be equal
C. Can be unequal
D. Must be certified by the state where transactions takes place/
C. Can be unequal
The following are all elements of a valid contract EXCEPT?
A. Consideration
B. Offer and acceptance
C. Competent
D. Written Evidence
D. Written Evidence
The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called?
Implied Authority
The powers directly given to a producer in an agency contract are called?
Express
An insurance company’s failure to enforce a contract’s provision is called a (n)?
Waiver
