Legal Concepts of the Insurance Contract

Question 1

Which of these is NOT considered to be an element of an insurance contract?
<>Negotiating 
<>The offer
<>Consideration
<>Acceptance

Answer 1

Negotiating is not an element
Elements of an insurance contact:
1. Offer and acceptance
2. Consideration
3. Legal purpose
4. Acceptance

Question 2

A life insurance policy would be considered a wagering contract WITHOUT: 
<> Constructive delivery
<> Insurable interest
<> Agent solicitation
<> Premium payment

Answer 2

Insurable intrest

~ Without insurable interest, a life insurance policy would be considered a wagering contract.

Question 3

Statements made on an insurance application that are believed to be true to the best of the applicant’s knowledge are called:

Answer 3

Representations

~ Statements made on an insurance application that are believed to be true to the best of the applicant’s knowledge

Question 4

Stranger Originated Life Insurance(STOLI) has been found to be in violation of which of the following contractual elements?
<> Consideration
<> Legal Purpose (Insurable Interest) 
<> Competent Parties
<>Offer/Acceptance

Answer 4

Legal Purpose

~ A STOLI arrangement is used to circumvent state insurable interest statues

Question 5

Who makes the legally enforceable promises in a unilateral insurance policy?

Answer 5

Insurance company

~ Under a unilateral insurance policy, the insurance company makes the legally enforceable promises

Question 6

Which of these is considered a statement that is assured to be true in every aspect?
<> Warranty
<> Estoppel
<> Representation 
<> Guarantee

Answer 6

Warranty

Question 7

In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contact is this?

Answer 7

Unilateral

~ Insurance contracts are unilateral. This means that only one party (the insurer) makes any kind of enforceable promise

Question 8

Which of these require an offer, acceptance, and consideration?
<> Estoppel
<> Contact
<> Warranty
<> Representation

Answer 8

Contact

~ Offer, acceptance, and consideration are all elements of a contract

Question 9

Insurance policies are offered on a “take it or leave it” basis, which make them:

Answer 9

Contracts of Adhesion

~ Because insurance policies are offered on a “take it or leave it” basis, they are referred to as Contacts of adhesion

Question 10

Which of these is NOT a type of agent authority?
<> Apparent
<> Principal
<> Express
<> Impied

Answer 10

Express
~ Agent authority is what an agent is authorized to do on behalf of his company.
The three types of agent authority include express, implied, and apparent authority

Question 11

A life insurance arrangement which circumvents insurable interest statues is called:

Answer 11

Investor-Originated Life Insurance
~ IOLI is used to circumvent state insurable interest statues. This is done when an investor (or stranger) persuades an individual to take our life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insured and makes the premiums, then collects the death benefit when the insured dies.

Question 12

All of the following are considered to be typical characteristics describing the nature of an insurance contract, EXCEPT:
<> Adhesion
<> Unilateral 
<> Bilateral
<> Aleatory

Answer 12

Bilateral

~ Unilateral, aleatory, and adhesion are all special features of insurance contacts. Bilateral is not.

Question 13

The part of a life insurance policy guaranteed to be true is called a(n)

Answer 13

Warranty
~ Warranties are stamens that are considered literally true. A warranty that is not literally true in every detail, even if made in error, is sufficient to render a policy void.

Question 14

A policy of adhesion can only be modified by whom?

Answer 14

The insurance company

~ A policy of adhesion is best described as a policy which only the company can modify.

Question 15

Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange is unequal values reflects which of the following insurance contract features?
<> Consideration
<> Unilateral
<> Aleatory
<> Adhesion

Answer 15

Aleatory
~ Insurance contracts are aleatory in that the amount the insured will pay in premiums is unequal to the amount that the insurer will pay in the event of a loss

Question 16

Which of these arrangements allows one to bypass insurable interest laws?
<> Investor-Originated Life insurance 
<> Concealment
<> Contract of adhesion
<> Indemnity contact

Answer 16

Investor-Originated Life insurance
~ IOLI, sometimes called STOLI is used to circumvent state insurable interest statutes. This is done when an investor (or stranger) persuades an individual to take out life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insured and make premiums, then collects the death benefit when the insured dies

Question 17

At what point does an informal contract become binding?

Answer 17

When one party makes an offer and the other party accepts that offer
~ an informal contract becomes binding when one party makes an offer and the party accepts that offer

Question 18

Insurance policies are considered aleatory contacts because
<> They are “take it or leave it” contracts
<> Both parties consent to the contract
<> Performance is condition upon a future occurrence
<> the contract is voidable upon proof of fraud

Answer 18

Performance is conditioned upon future occurrence
~ Insurance contacts are aleatory. This means there is an element of chance and potential for unequal exchange of value or consideration for both parties. An aleatory contract is conditioned upon the occurrence of an event.

Question 19

When third-party ownership is involved, applicants who also happen to be stated primarily beneficiary are required to have:
<> The agent complete a third-party application
<> All those involved to be family-related
<> All statement be warranties
<> Insurable interest in the proposed insured

Answer 19

Insurable interest in the proposed insure
~ In third-party ownership, an applicant who is also the designated primary beneficiary must have an insurable interest in proposed insured

Question 20

Taking receipt of premiums and holding them for the insurance company is an example of:

Answer 20

Fiduciary responsibility

~ Taking receipt of premiums and holding them for the insurance is an example of fiduciary responsibility.

Question 21

If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of?

Answer 21

Insured

Question 22

The consideration clause of an insurance contract includes:

Answer 22

The schedule and amount of premium payments

~ The consideration clause of a Life or Health policy includes the schedule and amount of premium payments

Question 23

When must insurable interest be present in order for a life insurance policy to be valid?

Answer 23

When the application is made

~ Insurable interest must exist when the application is made for it to be valid.

Question 24

E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as the primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary benefiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E’s lide insurance policy be directed to?

Answer 24

F
~ In this situation, the proceeds from E’s life insurance policy will go to F. Insurable interest only needs to exist at the time of application.

Question 25

Life and health insurance policies are:
<> Unilateral contracts
<> Bilateral contracts
<> Multi-lateral contracts
<> Non-lateral contracts

Answer 25

Unilateral contacts
~ Life and health insurance policies are considered unilateral contracts because one party makes a promise, and the other party can only accept by performance

Question 26

What is a warranty?

Answer 26

Is a statement guaranteed to be true

Question 27

What is the consideration given by an insurer in the Consideration clause of a life policy?
<> Promise to never cancel coverage
<> Promise to not raise premiums
<> Promise to accept an insured’s assignments of benefits
<> Promise to pay a death benefit to a named beneficiary

Answer 27

Promise to pay a death benefit to a named beneficiary

~ Consideration is given by the insurer by promising to pay a death benefit to a named beneficiary