contract law and legal factors affecting underwriting Flashcards
define contract
a binding promise between two or more parties and or an agreement enforceable by law
define formal contract
a contract that is binding because of the form of the instrument in which the promise is expressed. such instruments are binding contracts if they comply with the special requirements of the form. eg: check or loan agreement
define informal contract
a binding contract that creates certain legal duties because the parties have met requirements concerning the substance of the agreement rather than form. Eg: insurance contract, leases,
define bilateral contract
both parties to the contract make legally enforeable promises
define unilateral contract
one part to the contract makes legally enforceable promises, eg insurance contract
define breach of contract
the failure of a party to preform according to the terms of a contract. A court remedy can be sought.
define representation
in insurance, a statment of facts made by an applicant upon which an insuere based its decision
define misrepresentation
a statment of fact that is actually false
define material misrepresentation
a false statement of fact that is so substantial and important that had the party to whom the statement was made known the statement was false, it would have caused that party not to enter the contract
define reformation
an action of the court by which a contract is revised to express the real agreement or original untent of the parties
define rescission
a remedy in which a contract is voided because of material misrepresentation
define waver
the giving up of a known right
define estop
to prevent or preclude
define estoppel
the legal principle in which a party is prevented from asserting a claim or right that is inconsisten with prior conduct on which another party detrimentally relied.
define remedy
a legal means of correcting a wrong
define punitive damages
damages awarded to a plaintiff to punish the defendant
define agent
a person who acts for another person or entity
what is usually included in an insurance contract?
policy form, copy of application signed, any state approvedd questionnaires, and riders
what are the 5 requirements to create a contract?
- offer
- acceptance
- legally adequate consideration
- competent parties
- form
- legal agreement
- no duress or undue influences
What does the Health Insurance Policy Language simplification Model Act, formed by the NAIC intale?
the act prohibits print size that makes the contract difficult to read, and specific that the style and arrangement of the policy must be such that no portion is given undue proiminence
Do canadian policies need to be filed?
no, except for those used with variable or equity product contracts
in canada, what act is in place for Life insurance contracts to be regulated, and by who?
regulated by provincial law and follow the unifrom life insurance act drafted by the confernce of commissioners on uniformity of legislatin.
what concept is in place to help avoid, contract laws that are used for wagering purposes
concept of insurable interrest
what is an example of the laws that regulate the claims practices of insureres, and what does it promote?
fair claim practice laws, mandate that insueres promptly investigate and settle claims
does a conditional premium receipt provide temporary life insurance/
no, unless certain conditions occur
does binding premium reciepts provide temporary insurance?
yes- effective immediateley on payment of the initial premium without conditions.
Will premium reciepts have limits?
usually, a limited amount of coverage (1MM)
what is an approval premium reciept?
a conditional premium recoept. there is no coverage under this type of reciept until the insurer approves the risk.
Rare, d/t limited protection
what is an insurability premium?
a conditional premium receipt. coverage is provided under this form of reciept if the insuere determines the proposed insured was insurable at the time the reciept was issued
define a binding premium reciept (Temporary insurance reciept)
temporary insurance becomes effective on the date the premium reciept is issued. The reciept is cancelled should the insuere find the proposed insured is uninsurable or upon issue of the policy. An abbreviated medical question is asked on the reciept.
what can be/ usually is included on the face page of an application?
description of the plan, and describe the free-look provision. This will be followed by required statutory provisions, optional policy provisions, and additional benefits or riders. a copy of the application will be included in the policy.
What is the purpose if the entire contract provision?
this specific that the polic and the application make the entire contract.
- it prohibits the insuere from later adding aggrements or conditions to the policy
- it includes the representations made by the applicant upon which the insuere relied in issuing the policy
In Canada, what is included in the entire contract- as per the provision law?
application, policy, any document attached to policy at issue, and amendment to the contract in writing after the policy is issed.
- there is no rule that the application must be attached to the policy (except in quebec) but most companies do so.
define the incontestable clause provision
this provides that after a policy has been in force for a period of 2 years, during the lifetime of the insuered, the policy becomes incontestable- that is the insurance company cannot contest the policies validity.
most incontestable clauses state that the policy can be contested by the insuere in the first two policy years, during the lifetime of the insured. What does that mean, and why is it there?
the policy cannot become incontestible if the insuered dies within the first two years of the policy in force.
this is to prevent a beneficiary from delaying the submission of a claim until after the contestable period has expired.
what is different in canada, from the us, in terms of incontestable period?
a fraudulent statement can void a contract beyond the two year period. This can apply even to a misstatement of smoking history.
what is the purpose of the misstatement of age provision?
covers the procedure for correcting an insured’s age that is innocently misstaed. If the error is discovered after death the benefits can be denied.
what is the grace period provision?
this defines the time beyong the premium due date in which the premiums must be accepted by the insuere.
-coverage continues in this period
what is the average length of the grave period?
31 days.
what does the reinstatement provision allow for the insured?
provides them with the requirements and the time period in which a policy can be pit back in force after it has lapsed for nonpayment of premiums.
typically a policyowner will be able to apply to reinstate a lapsed policy withint 3-5 years of a policy lapse.
do companies allow for reinstatement of a policy that has been surrendered>
no
when will canada allow for the right to reinstate a policy, and what is required>
2 years
-past due premium and other indebtedness plus interest, must be paid and evidence of insurability satisfactory to the insuere must be submited.
is in it canada or the US where the suicide clause will be renewed with reinstatement?
CAN
What does the Dividned Provision mandate?
payment of dividends on participating policies and also describes available dividend options.
what does the basic dividend option include?
payment in cash, reduction of the current premium purchase of paid-up additional coverage purchase of one-year term or holding to accumulate at interrest.
what is the nonforfeiture provision/guaranteed policy value for?
should a policy terminate with cash value, the policyowner will be given the option to surrender the policy for cash, to purchase paid-up insurance for a reduced amount, or to purchase extended term insurance for the net faceamount.
in canada does the Uniform life insurance act require insurers to give the insured the right to elect nonforfeiture benefits?
no, however, on perm policies theres options are usually included.
what does the Quebec Civil code states what in terms of benefits and dividends?
they must be applied to any premium to keep the policy in force, unless otherwise stipulated
what is the purpose of the policy loan provision?
it defines the right to borrow from the cash value of the policy and describes the impact of a policy loan on the policy proceeds from the repayment of the loan and on the policy loan interest.
an outstanding loan amount will be deducted from ____ should the policy owner surrender the policy.
the cash value,
when will a policy laspe interms of indebtedness?
when there is unpaid interrest, this will be added to the indebtness on the contract. A policy will lapse when the total indebtedness exceeds the loan value.
under the automatic premium loan provision, what can happen to an overdue premium?
it auto creates a loan on the policy, if there is sufficient loan value to pay the premium.
are optional policy provision required by law?
no, but are commonly used
what is an ownership provision?
rights of policy owners, rights include
- abilioty to change revocable beneficiaries
- access policy values
- obtain a policy loan
- make assignments
- surrender the policy for its values.
how does the ownership provision differ in canada?
does not necesarily describe the procedure for transfering ownership.
is it in canada or the us where the owners rights are limited when there is an irrecovable beneficiary named?
both
What is assignment provision?
transfering ownership rights to another person. ie. insurance policy as a gift, sale, or pledge as collateral for a loan
which assignment provision can be used to gift or sell the policy?
an absolute assignment. it will not cancel an irrevocable beneficiary’s rights unless the beneficiary consents.
how can someone preform a collateral assignment?
by utulizing the policy as collateral for a loan with financial institution. This type of assignemnt is temporary and the owner rights are revert upon repayrment of the loan.
under the collateral assignment, a policy holder retains which rights?
- collect disability payments
- designate or to change the beneficiary
- elect an optional mode of settlement
what is the suicide clause?
permits an insuere, under certain circumstances, to deny a claim that is the results of a suicide. This is usually a specific period 1-2 years, during which suicide is not covered as a risk.
what is the change of plan provision
the option is available to change the plan or the amount of insurance and the conditions and requirements to do so.
what is the Accelerated Benefits provision?
also known as living benefits provision, this defines the citeria that must be met for a payout of the death benefit while the insured is till alive/
-a portion of the death benefit can be paid in a lump sum or in level monthly payments
what is the purpose of the Disability waiver benefit?
is to keep the policy in force, without the payment of premiums by the applicant, during a period of disability of the insurer. Premiums continue to be waived as long as the insured disability continues
what is the interpreted definition of disability according to the courts?
a disability that precents the insured from preforming the substantial material acts of their own occupations or of any other occupation for which the insured experience education or trianin might fit him.
what are examples of presumptive disabilities?
loss of sights, secerance of hands or feet, los of use of hands or feet, loss of speach and loss of hearing,
when can an insuere (both in US and CAN) contest a disability waiver benefit claim for material misrepresentation?
any time
what is the purpose of accidental death benefit?
provides additional amount of insurane should the death of the insured occur by accident.
what are the two basic definitions of acidental death that have been used by insurers?
accidental means in which the cuase and result must be accidental, and accidental results where only the result must be accidental.
in an accidental death benefit dispute what is the responsibility of the plaintiff?
to proce the cause of death was accidental. if the insurer disputes the coverage, it may have to prove the death resulted from an activity not covered.
what is typically not included in an accidental death provision?
self-harm injury participation in an assault or felony descent from an aircraft infection or disease alcohol drugs (unless administered) war
** theres usually an age limit
what is the long term care provision do?
provides the policyowner with monthly benefits usually allocated for nursing home care. The benefit will typicaly be an accelerated pauyment of a portion of the death benefit.
What is the termninal Illness provision do?
offer a benefit to the policy ownder in the form of pre-payment of a percentage of the death benefit, should the insured be diagnosed with a terminal illness
what is the extended maturity option?
at policy maturity, policy proceeds and any policy gain are paid to the policy owner.
- help avoid the taxable event that would occur upon treciept fo the proceeds.
What does a term rider on a perm plan do?
provides additional amount of protection, typically this rider offers the benefits of term rates. the rider expires, at that time, there is typically no cash value available on that portion of the policy.
what rules are required for an admendement/ endorsement to be legally enforced?
- they must be attached to the policy
2. they must be signed by the policyowner
what is the typically use for an amendment form?
clarify unanswered application questions or application inconsistencies, verification of plan, and providing details of a polocy rating or a denied benefit or rider
what is the purpose of the insurability statement?
serves as an upfate to verify the insurability factors such as health, finanical status, hazordous activities
other insurance
etc.
most applications and policies will state that coverage will not take effect until when?
until the first full premium is paid and a polocy is deliverd while the insured is alive, and there has been no material change in health since the signing of the applciation.
define insurable interrest
the benefit or advantage from the continued life of the insured. Can be financial, dependance, or based on life/affection
who is the typical beneficiary, and does the insurable interrest have be there for an application on ones own life?
beneficiary can be anyone, and the interrest does not need to be present, (in some states yes)
who must be present when an application is being taken on someone else?
the insurable interest, personal or business, must be present.
when is spousal consent typically required?
when the named beneficiary is someone other than the insured’s spouse.
what is common in estate planning, regarding the beneficiary?
to name a trust as the owner and beneficialy of the life insurance contract.
what happens in canada if there is no insurable interest at the time of approval?
the contract is voided
a person has an insurable interrest on his own life or on the life of who
- child/ grandchild
- his spouse, civil union, domestic partner
- any persion upon whom he is wholly or in part dependent (Spport)
- his employee
- any person in which he has a percuiary (financial interrest)
who is included on a business interrest? who is not?
who is: key person, business partner, officers, stockholders, parties to buy-sell
not: all employees
what is recision and when can it be taken?
taken if misrepresentation is uncovered during the contestible period.
it is the process of making a contract void from the beginnig.
what are the acceptions to the recision clause past the contestible period?
can be cancelled after he period if it has been determined by the insuere that there was fraudulent impersonation, lack of insurabe interest, or if the policy was obtained with intent to murder
what is the purpose of reformation?
provides for the revision of the contract that reflects the original intent of the parties.
what is the fundamental rule of agency law’?
acts of n agent, within the scope of the agents power, are acts of the principal. an agent can subject the principal to contractual liability.
define waiver
the voluntary giving up of a right.
are waivers done orally or written?
both,
> an extension is deemed as a waiver as well
what does estop mean?
to prevent of preclud.
how can producers create an estoppel on the insurance company
by misleading the propsoe dinsured, such as when the agent informs the application that is not necessary to disclose complete medical history.
> when this occurs the insurer is estopped from asseting a defence of material misrepresentation.
