Chapter One- Contract Law Flashcards
What are the 4 essential elements that make an insurance contract LEGALLY binding?
- Agreement- Offer and Acceptance
- Consideration
- Competent Parties
- Legal purpose
Which party makes the offer and which party accepts the offer in an agreement for an insurance contract?
The offer is made by in applicant during the application process.
The agreement is accepted when the insurer’s underwriter approves the application and issues a policy.
What is the binding force of any contract?
The consideration
What is consideration in a contract?
Consideration is something of value that each party gives to the other.
What is the consideration on the part of the applicant?
The payment of the premium and the representations made in the application
What is the consideration on the part of the insurer?
The promise to pay in the event of a loss
What are three requirements that a applicant must meet in order to be considered competent to enter a contract?
- Legal age
- Mentally competent to understand the contract
- Not under the influence of drugs or alcohol
What is the purpose of a insurance contract?
To be legal and not against public policy,
What are three ways to prove an interest is insurable?
Insurable interest is proven by the following:
1. Love and affection
2. Economic loss
3. Financial loss
What is a warranty?
An absolutely TRUE statement upon which the validity of the insurance policy depends.
Are statements by the applicants usually considered warranty?
No.
What is the one case in which an applicants statements is considered warranties?
Fraud
What is representations?
Statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true.
Give an example of representations in insurance.
Representations are the answers the insured gives to the questions on the insurance application.
What are untrue statements on an application called?
Misrepresentations
What are material misrepresentations?
Statements that, if discovered, would alter the underwriting decision of the insurance company.
What is it called when material misrepresentations are intentional?
Fraud
What is a conditional contract?
A contract that requires that certain condition s must be met by the policy owner and the company in order for the contract to be executed.
If a insured person has to pay a premium and provide proof of loss in order for the insurance to cover a claim, what kind of insurance contract is this?
Conditional insurance contract
What is a unilateral contract?
A contract in which only one of the parties to the contract is legally bound to do anything.
If an insured party makes no legally binding promises and an insurer is legally bound to pay losses covered by a policy by force, what kind of contract is this?
Unilateral insurance contract
What is a contract of adhesion?
A contract prepared by one of the parties (insurer) and accepted or rejected by the other party (insured).
Are contracts of adhesion negotiated?
No, they are offered on a take-it-or-leave-it basis by the insurer.
Which party do ambiguities benefit in a contract of adhesion?
The insurer
Insurance contracts are aleatory, what does that mean?
A contract that outlines an exchange of UNEQUAL AMOUNTS OR VALUES.
Give an example of an aleatory contract.
Insurance contracts are aleatory. The insured is paying far lower amount than the insurer would in the event of a loss.
What two documents are required in order to have an ENTIRE CONTRACT?
The application stapled to the policy.
What is the purpose of a notice to the applicant?
To inform the applicant that a credit report will be ordered concerning their past history and any other health insurance for which the applicant has previously applied.
Whose responsibility is it to ensure the application for insurance is complete and accurate to the best knowledge of the applicant?
The agent
What two (three) signatures are required on the application?
- Purposed insured
- The policy owner (if different from the purposed insured)
- The agent who solicits the insurance.
What is the best thing to do if a mistake is made on an application?
Start over with a fresh application.
If it is not practical to start the application over because of a mistake how do you correct mistakes on an application?
Draw a line through the incorrect information with an ink pen and have the applicant initial next to the corrected answer.
If an applicant is paying a premium with the application are they covered at the time of payment?
No, they are not covered until the agent has approved the application and issued a policy.
If a customer has filled out an application with out a premium what does the agent have to collect before releasing the policy?
The premium AND a statement of continued good health.
Who send the application to the insurer for approval?
The agent that collected the information.
Do you have to inform the applicant which sources you are using to determine if they are insurable?
Yes! You not only have advice the applicant of the sources to be used but also how the information is gathered.
What is the best source for getting accurate information about an applicant’s medical history?
An attending physician’s statement (APS)
What information is typically included in an attending physician’s statemtent (APS)?
- Disease/disorder being treated
- Treatment required
- Length of treatment and recovery
- Prognosis
What are the two types of medical examinations that can be requested by a potential insurer?
- Paramedical report- completed by a paramedic or a registered nurse
- Attending physician’s statement (APS)
What is the medical information bureau (MIB)?
A membership corporation owned by member insurance companies. It is a nonprofit trade organization that collects, maintains, and make available to insurance companies important underwriting information on applicants for life and health insurance.
Can an applicant be refused because of some adverse information discovered through the MIB?
No, insurers cannot refuse coverage solely on the basis of adverse information on an MIB report.
Who pays for medical examinations required by an insurance company before accepting a policy?
The insurance company is responsible for the costs of the exams
What is required on the part of the insurance company if they require the applicant take an HIV test?
They have to get consent for the test which includes:
1. Explaining the purpose of the test.
2. Explaining the confidentiality of the results
3. An explanation of how they will inform the applicant of the results.
When can an underwriter make an adverse decision concerning someone with HIV?
If the symptoms present in the applicant are confirmed to be directly related to HIV
Which act establishes procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used?
Fair Credit Reporting Act
What two outside report sources can agents use to request additional information about a particular risk from an applicant?
- Consumer reports
- Investigative consumer reports
What are consumer reports?
Information regarding a consumer’s credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.
Are consumer reports oral or written?
They can be both
What is the difference between a consumer report and an investigative consumer report?
The primary difference is that the information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.
Do investigative consumer reports need to be reported to the consumer they are about?
Yes, they need to be advised in writing about the report within 3 DAYS of the date the report was requested.
If the consumer wants more information about an investigative consumer report, how many days does an agent have to get them that additional information?
5 days
What is protected health information (PHI)?
Protected information includes all “individually identifiable health information” held or transmitted by a covered entity or its business associate.
How should policies be delivered?
In person, if possible.
When does the free-loo period begin?
Once the delivery of a policy is made.
Who is responsible for explaining the policy’s main benefits and provisions?
The agent has the responsibility to provide the insured person with this information
What is required if the policy is issued with any changes or amendments?
The agent is required to explain the changes AND the insured’s signature acknowledging receipts of these amendments.
Is it the responsibility of the agent or the insured to carefully compare the benefits, limitations and exclusions found in the current and proposed replacement policy?
The agent
Who’s responsibility is it to make sure that the. current policy is not cancelled before the new policy is issued?
The agent
What is it called when a insured has a medical condition for which the insured sought medical advice or treatment within a specified period of time prior to the policy issued?
A pre-existing condition
