Legal concepts of the insurance contract

Question 1

Aleatory

Answer 1

feature of insurance contracts in that there is an element of chance for both parties and that the dollar given by the policyholder (premiums) and the insurer (benefits) may not be equal.

A legal bet is considered an aleatory contract

Question 2

Apparent Authority

Answer 2

deals with the relationship between the insurer, the agent, and the customer. It is the appearance of authority based on the agent-insurer relationship.

Apparent authority is a situation in which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal.

Question 3

A competent party

Answer 3

is 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 4

A Conditional Contract

Answer 4

certain conditions must be met by all parties in the contract. This is needed when a loss occurs in order for the contract to be legally enforceable. All insurance contracts are conditional contracts

Question 5

Concealment

Answer 5

is the failure of the insured to disclose to the company a fact material to the acceptance of the risk at the time application is made.

Question 6

Consideration

Answer 6

something of value that each interested party gives to each other. The insured provides consideration with payment of premium. The insurer provides consideration by promising to pay the insurance benefit.

Question 7

contract of adhesion

Answer 7

one author - the insurance company.

If there is an ambiguity in the contract, the courts always favor the insured over the insurer.

Question 8

Express authority

Answer 8

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

Question 9

Fiduciary Responsibility

Answer 9

A fiduciary is someone in a position of trust. With insurance, for example, it is illegal for agents to mix premiums collected from applicants with their own personal funds. This is called commingling.

Question 10

Health insurance contracts

Answer 10

are indemnity contracts and will only reimburse the actual cost of the loss (pay medical bills, etc.) You cannot profit from an indemnity contract.

Question 11

Implied authority

Answer 11

authority not specifically 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 12

Insurable interest

Answer 12

requires that an individual have a valid concern for the continuation of the life or well-being of the person insured.

Question 13

law of agency

Answer 13

establishes a relationship in which one person is authorized to represent and act for another person or company.

In applying the law of agency, the insurance company (insurer) is the principal. An agent or producer will always be deemed to represent the insurance company and not the applicant.

Question 14

Legal purpose

Answer 14

means an insurance contract must be legal and not in opposition of public policy

Question 15

Life insurance contracts

Answer 15

valued contracts, which means it will pay a stated amount.

Question 16

Offer and acceptance

Answer 16

is an offer that may be made by the applicant by signing the application, paying the first premium, and if necessary, submitting to a physical examination.

Question 17

Policy A “policy”

Answer 17

a written contract in which one party promises to indemnify another against loss that arises from an unknown event.

Question 18

Policy Rider

Answer 18

A legal attachment amending a policy.

Question 19

Representations

Answer 19

statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief, but that are not warranted as exact in every detail.

Question 20

Stranger-Originated Life Insurance (STOLl)

Answer 20

life insurance arrangements where investors persuade consumers (usually seniors) to take out new life insurance policies, with the investors named as beneficiary.

Question 21

A Unilateral Contract

Answer 21

one sided agreement, where only the insurer is legally bound. In an insurance contract only the insurance company is legally bound to do anything.

Question 22

Utmost Good Faith

Answer 22

implies that there will be no attempt by either party to misrepresent, conceal or commit fraud as it pertains to insurance policies.

Question 23

A Voidable contract

Answer 23

is a contract that can be made void at the option of one or more parties to the agreement.

Question 24

A Void contract

Answer 24

is an agreement without legal effect: an invalid contract. Fraud: In the event of fraud, insurance contracts are unique in that they run counter to a basic rule of contract law.

Question 25

Waiver

Answer 25

is an agreement waiving the company’s liability for a certain type or types of risk ordinarily covered in the policy; a voluntary giving up of a legal, given right.