Chapter 2: Legal Concepts and Contracts Flashcards
What is a contract?
a legally binding agreement between two or more parties where a promise of benefits is exchanged for valuable consideration. An agreement must have both an offer and an acceptance.
The purpose of an insurance policy is to ______ (make whole) the insured when a covered loss occurs.
Indemnify
What is another name for premium?
Consideration
Related to indemnity, _________ is the right of the insurer to assume the rights of the insured and sue the responsible third party for damages inflicted upon the insured. It primarily applies to property and casualty, and seldom to life and health insurance.
Subrogation
Four elements must be present in a legal contract
Offer and Acceptance
Consideration
Competent parties
Legal Purpose
_______ occurs when a policy is issued.
Acceptance
_______ is an exchange of value between two parties of the contract
Consideration
TF: Beneficiaries and Insureds (unless the insured is the applicant) are NOT parties to the contract.
True
Insurable interest must exist when?
At the time of the application
Four basic components of insurance contracts?
The policy face,
Insuring clause,
Conditions, and
Exclusions.
The _____ ____, or title page, includes:
The named insured,
Policy number,
Policy issue date,
Policy limits,
Premium amount,
Premium due dates,
A right of examination statement (right to return the policy), and
Signatures of the insurer’s secretary and president
Policy Face
The _____ _____is the insurer’s promise to pay covered losses as long as the insured pays premiums and abides by the terms and conditions of the policy.
Insuring Clause
The ______ are the rights and responsibilities of all parties, and all policy provisions are found here.
Conditions
The ___________ section lists the risks the insurer will not cover.
Exclusions
______ _______ requires that an individual have a valid concern for the continuation of the life or well being of the person insured
Insurable Interest
The four examples of insurable interest:
The purchaser is also the person insured under the policy
Marriage or blood relationship (e.g., spouses have insurable interest in each other; parents and children have insurable interest in each other)
Business partners
Creditor-debtor relationship
In a _____ of ____, there is only one author, the insurance company.
Contract of Adhesion
In a ____ _____, there is an unequal exchange of value (payment of benefits is contingent upon the occurance of an uncertain loss).
Aleatory Contract
A ____ ____ is a contract between an individual and the insurer.
Personal contract
TF: Life insurance is not considered a personal contract because the policyholder has no stake in the risk assumed by the insurer.
True
a ____ _____ is a one sided contract (only 1 promiser)
Unilateral Contract
A _____ _____ means all parties must meet certain conditions when a loss occurs in order for the contract to be legally enforceable (if-then contract)
conditional contract
________ are statements that are guaranteed to be true and are part of the legal contract (Breach of _______ is grounds for voiding an insurance contract)
Warranties, Warranty
_______ = statements made by insured, true to the best of their knowledge
Representations
_______ = intentional lies made by the insured.
Misrepresentations
All parties to a contract must be of a legal age, mentally capable of understanding the terms of the contract, and not influenced by drugs or alcohol. Which of the following elements of a legal contract is described?
Select one:
a. Competent parties
b. Consideration
c. Agreement
d. Legal purpose
A
All of the following statements are true regarding warranties, EXCEPT:
Select one:
a. Warranties are statements that are guaranteed to be true in every respect.
b. Insurance companies are held to the principle of warranties.
c. Insureds are held to the principle of warranties.
d. Breach of warranty is grounds for voiding an insurance contract.
C
Joyce applies for a health insurance policy. When the agent delivers the policy to Joyce, an additional premium is required to account for Joyce’s medical conditions. Joyce must agree to pay the additional premium before the policy is effective. The insurer has made:
Select one:
a. An invitation to offer
b. Acceptance
c. A counter-offer
d. Consideration
C
Which of the following terms best describes the applicant’s statements on an insurance application?
Select one:
a. Indemnities
b. Adhesion
c. Representations
d. Warranties
C
All of the following are part of the consideration element of an insurance contract, EXCEPT:
Select one:
a. The insurer’s promise to pay a covered loss
b. The applicant’s statements on the application
c. The initial premium paid by the applicant
d. The applicant’s promises
D
In order to be valid, a contract must have:
Select one:
a. Legal purpose
b. Public purpose
c. Government purpose
d. Private purpose
A
What are the basic elements of a legal contract?
Select one:
a. Offer, acceptance, consideration, competent parties and legal purpose
b. Acceptance and consideration
c. Policy face, insuring clause and adhesion
d. Competent parties, acceptance and reasonable expectations
A
Insurance contracts are conditional. Which of the following would be a characteristic of a conditional contract?
Select one:
a. If a loss occurs, then the insurance company will pay benefits.
b. Only the insurance company makes legally enforceable promises in the contract.
c. The contract is a “take it or leave it” contract.
d. There is an unequal exchange of value with the contract.
A
Insurable interest requires that an individual have a valid concern for the well being of the person insured. In a life policy insurable interest can be present in all of the following, EXCEPT:
Select one:
a. Business partners
b. Second cousins
c. Spouse or parent
d. Creditors
B
What type contract is said to be, if…then?
Select one:
a. Personal
b. Conditional
c. Adhesion
d. Unilateral
B
