Legal Concepts of Insurance

Question 1

Adhesion

Answer 1

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.

Question 2

Agent

Answer 2

An agent represents themselves and the insurer at the time of application.

Question 3

Aleatory

Answer 3

A contract that presents the potential for an unequal exchange of value or consideration between both parties. Aleatory contracts are conditioned upon the occurrence of an event.

Question 4

Apparent Authority

Answer 4

The insurer providing the agent authority to preform unspecified tasks based on the agent-insurer relationship.

Question 5

Broker

Answer 5

Represents themselves and the insured at the time of application.

Question 6

Competent Party

Answer 6

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.

Question 7

Concealment

Answer 7

The failure of the application to disclose a known material fact when applying insurance.

Question 8

Consideration

Answer 8

The part of the insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.

Question 9

Applicants

Answer 9

Provide the insurer with a completed application and initial premium as consideration for insurance.

Question 10

Estoppel

Answer 10

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.

Question 11

Express Authority

Answer 11

The explicit authority granted to the agent by the insurer, as written in the agency contract.

Question 12

Fiduciary

Answer 12

The responsibility an insurance producer has to account for all premiums collected and provide sound financial advice to clients. A fiduciary is in a position of trust with regards to the funds of their clients and the insurer.

Question 13

Fraud

Answer 13

The deliberate knowledge of or intentional deceit to make false statements to be compensated by an insurance company.

Question 14

Implied Authority

Answer 14

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.

Question 15

Indemnity Contract

Answer 15

Contracts of indemnity attempt to return the insured to their original financial position.

Question 16

Insurable Interest

Answer 16

The financial, economic, and emotional impact associated with a person experiencing a specified loss. A person has an insurable interest in a loss if they have more to gain by not suffering the loss.

Question 17

Legal Purpose

Answer 17

An insurance contract must be legal in nature and not in opposition to public policy.

Question 18

Material misrepresentation

Answer 18

A false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk.

Question 19

Parol Evidence Rule

Answer 19

Involved 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.

Question 20

Policy rider or endorsement

Answer 20

An amendment added to an insurance contract that overrides terms in the original policy; endorsements may add or remove coverages, change deductibles, or revise any other policy feature.

Question 21

Reasonable expectations

Answer 21

The insured is entitled to coverage under a policy that any sensible and prudent person would expect it to provide.

Question 22

Representations

Answer 22

Statements made by the applicant that they consider to be true and accurate t o the best of the applicant’s belief.

Question 23

Subrogation

Answer 23

The right for an insurer to pursue a third party that caused an insurance loss to the insured.

Question 24

Unilateral

Answer 24

Unilateral contracts mean only one party, the insurer, makes any kind of enforceable promise.

Question 25

Utmost Good Faith

Answer 25

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.

Question 26

Valued Contract

Answer 26

Pays a stated sum regardless of the actual loss incurred. Life insurance contracts are valued contracts.

Question 27

Voidable Contract

Answer 27

An agreement that, for a reason satisfactory to the court, may be set aside by one of the parties in the contract.

Question 28

Waiver

Answer 28

The voluntary giving up of a legal, given right.

Question 29

Warranty

Answer 29

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.