Legal Concepts Of Insurance

Question 1

A contract of _____________ is one that has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. The applicant adheres to the contract terms on a take it or leave it basis when accepted.

Answer 1

Adhesion

Question 2

This is the person who represents the insurer during an insurance transaction and has been authorized to act on the insurance companies behalf. They have a fiduciary responsibility to both parties— the insurer and the policy owner

Answer 2

Agent

Question 3

This is a legal arrangement in which there is the potential for an unequal exchange of value or consideration between both parties. The insured may never file a claim in an insurance contract, or a claim may be filed after only one or two premiums.

Answer 3

Aleatory

Question 4

This refers to terms or conditions that are not clearly defined in an insurance

Answer 4

Ambiguities

Question 5

This is the appearance of the insurer, providing the agent authority to perform unspecified tasks based on the agent-insurer relationship. This perception of authority must stem from the insurer actions, even if the perception is unintended, and the perception is in error.

Answer 5

Apparent authority

Question 6

This is a licensed producer who represents himself and the insured (i.e. The client or customer) during an insurance transaction. A __________ is different from an agent.

Answer 6

Broker

Question 7

This is a person who is able to understand the contract to which two parties are agreeing. All parties must be of legal competence, which means that they must be of legal age, mentally capable of understanding the contract terms, and not under the influence of drugs or alcohol.

Answer 7

Competent parties

Question 8

This is the failure of an applicant to disclose a known material fact when applying for insurance

Answer 8

Concealment

Question 9

This is an agreement that remains enforce if certain conditions are met. The insurer‘s promise to pay benefits is dependent on the occurrence of an event that’s covered by the contract.

Answer 9

Conditional

Question 10

This is the legal description of the items of value that each party to the contract provides to the other. In the case of an insurance policy, the applicant provides material information and the premium. In return, the insurance company agrees to pay the cost of claims that are covered by the policy.

Answer 10

Consideration

Question 11

This clause is part of an insurance contract and sets for the initial and renewal premiums and frequency of future payments

Answer 11

Consideration clause

Question 12

This doctrine states that an insurance contract will be interpreted to mean what a reasonable individual would think it means, even if the insurer must pay additional benefits that are not intended by the contract

Answer 12

Doctrine of reasonable expectations

Question 13

This is the legal impediment to one party‘s ability to deny 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

Answer 13

Estoppel

Question 14

This is the explicit authority that is granted to the agent by the insurer, as written in the agency contract

Answer 14

Express authority

Question 15

_____________ is a person to whom property or power is entrusted for the benefit of another person. A producer is a ______________ that is in a position of trust regarding the funds of its clients and the insurer.

Answer 15

Fiduciary

Question 16

An individual commits __________ when he engages in intentional deceit to gain benefit. _____________ includes having deliberate knowledge of false statements that are made or intended, as well as the act of a person making such statements herself.

Answer 16

Fraud

Question 17

This is an authority that is not explicitly granted to the agent in the contract of agency, but which common sense dictates the agent has. This authority enables the agent to carry out routine responsibilities.

Answer 17

Implied authority

Question 18

This means that an insurance contract must be legal in nature and not in opposition to public policy

Answer 18

Legal purpose

Question 19

This is a false statement being made by an applicant that influences either an insurer‘s decision to accept the risk, or the classification and pricing of a risk that’s accepted by the insurer

Answer 19

Material Misrepresentation

Question 20

This is a statement being made as a legal representation that’s factually incorrect, either totally or in part

Answer 20

Misrepresentation

Question 21

This rule states that, when the parties agree in writing, all previous verbal statements come together. A written contract cannot be changed or modified by parole (oral) evidence.

Answer 21

Parole evidence rule

Question 22

This is an amendment, which is added to an insurance contract that overrides terms in the original policy. They may add or remove coverages, change, deductibles, or revise any other policy feature. In general, a policy owner must pay an additional premium to add these, that enhances policy benefits.

Answer 22

Policy rider or endorsement

Question 23

This is an amendment, which is added to an insurance contract that overrides terms in the original policy. They may add or remove coverages, change, deductibles, or revise any other policy feature. In general, a policy owner must pay an additional premium to add these, that enhances policy benefits.

Answer 23

Policy rider or endorsement

Question 24

This indicates that the insured is entitled to coverage under a policy that any sensible and prudent person would expect it to provide

Answer 24

Reasonable expectations

Question 25

These are statements made by the applicant that he considers true and accurate to the best of his belief

Answer 25

Representations

Question 26

This rule applies to contracts of adhesion. Court’s rule the terms of an insurance contract in favor of the insured if there is a legal dispute and the court hold the terms of the contract to be ambiguous. The insurer is responsible for ensuring that the contract is clear since it creates the policy terms as a contract of adhesion.

Answer 26

Rule regarding ambiguities

Question 27

This is the right for an insurer to pursue a third-party that caused an insurance loss to the insured

Answer 27

Subrogation

Question 28

This is a type of contract in which only one party—the insurer—makes any kind of enforceable promise. The promises remain in force for as long as the insured pays the required premium.

Answer 28

Unilateral

Question 29

This statement is based on the belief that both the policy owner and the insurer must know all of the material facts and relevant information. As such, they will provide each other with all material facts and relevant information.

Answer 29

Utmost good faith

Question 30

This type of contract pays a stated sum regardless of the actual loss occurred. Life insurance contracts or examples of these

Answer 30

Valued contract

Question 31

This contract is an agreement that has never really been enforce because it lacks one of the essential elements of a contract. For example, if a third-party provides a urine sample for an analysis, this active impersonation deprives the insurer of the information it needs any effect, the applicant is withholding necessary consideration therefore, any policy is void from the day it is issued.

Answer 31

Void contract

Question 32

This type of contract is an agreement that may be set aside by one of the parties in the contract for a reason that is satisfactory to the court.

Answer 32

Voidable contract

Question 33

This is the voluntary giving up of a legal given, right

Answer 33

Waiver

Question 34

This is a statement made by the applicant that is guaranteed to be true in every respect and also becomes a part of the contract.

Answer 34

Warranty

Question 35

If an exam question asks about identifying the party who enters a contract with an insurer, the proper answer is _____________ even if “the insured” is also given as a choice.

Answer 35

The policy owner

Explained: the policy owner (regardless of whether he’s also the insured) has committed to pay the premium. It’s also the policy owner who has the right to make changes or exercise policy options.

Question 36

In an insurance contract, ______________ is given by the applicant in exchange for the insurer’s promise to pay the benefits.

(completed application and premium payments.)

Answer 36

Consideration

Question 37

___________ is a legal principle that reinforces the rule that ambiguities and Insurance contracts should be interpreted in favor of the policyholder. It also states that an insured is entitled to coverage under a policy that is sensible and prudent person would expect it to provide.

Answer 37

Reasonable expectation

Question 38

Main difference between an agent and a broker:

Answer 38

Agents represent the insurer, while brokers represent the buyer (or applicant)

Question 39

Is a failure to act or not to act in a reasonable or prudent manner

Answer 39

Simple negligence

Question 40

Results from a reckless disregard for the need to act in a reasonable manner, regardless of the potential for harm

Answer 40

Gross negligence

Question 41

This occurs when a person recklessly disregards reasonable care standards, and is aware that bodily injury or property damage will probably occur. This borders on being an intentional act, which liability insurance doesn’t cover.

Answer 41

Willful and wanton negligence

Question 42

At what point does an informal agreement become a binding contract?

Answer 42

When consideration is provided by one of the parties to the contract