Chapter 2 Legal Concepts of the Insurance Contract Flashcards
4 Elements Comprising a Legally Binding Contract
- Offer and Acceptance
- Consideration
- Legal Purpose
- Competent Parties
The Effective Date of a policy is…..
the date the insurer accepts an offer by the applicant “as written”
An insurance contract is conditional because…
the insurers promise to pay benefits is dependent on the occurrence of the risk insured against.
Who is a contract between…
the Policy Owner (who is not necessarily the insured) and the Insurer.
Policy Owner has the “Right of Assessment”
Aleatory Contracts
Unequal contingencies, there is an element of chance for both parties.
Premiums given by policy holder and the insurers benefits may not be equal
Unilateral Contract
Obligates only ONE party (the insurer) in the contract .
only the insurance company pledges anything
Bilateral Contract
Both parties make legally enforceable promises.
Valued Contract
Pay a predetermined amount with no way to assess loss.
Life insurance contracts ARE valued contracts.
Indemnity Contracts
Pay amount of loss only (up to policy limit)
pay amount necessary to return the insured back to same position as before the loss
Insurable Interest
Loss must be sustained by the applicant upon the death or disability of another and loss must be sufficient to warrant compensation.
True or False:
Insurable Interest must exist at the time a policy is purchased?
True
True or False:
Insurable interest must exist at the time of the claim?
False
The acts of the agent are considered the acts of the _____
company
an agent can bind a contract, a broker cannot
3 entities in concept of agency…
- The agent
- The insured
- The insurer
Agency law refers to
The relationship between the AGENT and the COMPANY with whom they are affiliated
3 ways in which insurer authorizes agent to represent it
- Express- spelled out in contract form
- Implied- authority is conjecture (opinion)
- Apparent- appearance of authority is present
Express Authority
specific authority given in writing
Implied Authority
authority not necessarily granted in contract but which common sense dictates the agent has.
allows agent to carry out routine responsibilities
Apparent Authority
Authority that agent appears to have , based on actions, words, deeds, or circumstances
Waiver
voluntary surrendering of a legal given right.
Estoppel
Legal enforcement of a waiver
Parol Evidence Rule
Prohibits making and additional verbal changes to a contract once it become a written document.
Fraud + Prior Knowledge =
VOID CONTRACT
Adhesion
life insurance policy is contract of adhesion, buyers must adhere to terms with no opportunity to negotiate.
Competent Party
one who is capable of understanding the contract being agreed to
Concealment
failure of insured to disclose a fact at the time application is made
Consideration
element of a binding contract
acceptance of premium payment and statements made by insured in the application
Fiduciary
Person in position of special trust and confidence
ex: fund supervisor
Fraud
act of deceit or intentional misrepresentation of facts.
Legal Purpose
in contract law. requirement that the reason for contract must be legal
Offer and Acceptance
offer can be made to applicant by signing application, paying first premium, or submitting to physical.
policy issue, as applied for constitutes acceptance by company.
Representation
statements made by applicant in application that they represent as being true. not warranted in exact detail
Valued vs. Reimbursement
valued pays stated amount in event of a loss
reimburesement contract pays amount of loss only
Void vs. Voidable Contract
void is without legal effect, invalid contract.
voidable is one that can be made void at the option of one or more parties.
Warranties
statements made on an application for insurance are warranted to be true. exact in every detail ( as opposed to representations).
statements on applications for insurance are rarely warranties unless fraud is involved.
