LEGAL CONCEPTS OF THE INSURANCE CONTRACT Flashcards
life insurance
the insurance company agrees to pay a predetermined amount (face amount or benefit) in exchange for the insured’s consideration (premium)
health insurance
the insurance company agrees to pay a percentage of the insured’s medical bills (or benefit) in exchange for consideration (premium)
consideration
the insured provides consideration to insurance company with payment of premium.
legal purpose
an insurance contract must be legal and not in opposition of public policy. if an insurance contract has insurable interest and the insured has provided written consent, it has legal purpose.
offer and acceptance
an offer is made when the applicant submits application and initial premium for insurance to the insurance company. the offer is accepted by the insurer after it has been approved by the insurance company’s underwriter and policy issued.
competent parties
all parties must be of legal competence
aleatory contract
contracts are unequal exchange.
unilateral contract
one sided agreement, where only the insurer is legally bound. only the insurer makes legally enforceable promises in the contract.
personal contract
most insurance contracts are personal contracts between the insurance company and the insured individual, not transferable to another person without the insurer’s consent
conditional contract
insurance contracts are conditional because certain conditions must be met by all parties in contract.
valued vs indemnity
life insurance contracts are valued contracts, which means it will pay a stated amount. health insurance contracts are indemnity contracts and will only reimburse the actual cost of the loss (medical bills etc)pri
principle of indemnity
restore the insured to the same financial condition as that which existed prior to the loss. no profit from the contract
utmost good faith
implies there will be no attempt by either party to misrepresent, conceal or commit fraud as it pertains to insurance policies.
warranties
statement made by the applicant guaranteed to be true (personal info etc) contract can be revoked if untrue
representations:
statements made by the applicant believed to be true (height, weight) are not part of the contract and need to be true only to the extent that they are material and related to the risk
concealment
withholding information or facts by the applicant (smoker diabetes)
insurable interest
requires that an individual have a valid concern for the continuation of the life or well-being of the person insured.
reasonable expectations
a concept which states that the insured is entitled to coverage under a policy that a sensible and prudent person would expect to provide. reinforces the rule that ambiguities in insurance contracts should be interpreted in favor of the policyholder.
stranger-originated life insurance
(STOLI) typically illegal
authorized agent
a person who actus for another person or entity and has the power to bind the principal to contracts - agents are granted authority through the agency
express authority
explicit authority granted to the agent by the insurer as written in the agency contract ex: solicit applications and collect premiums
implied authority
the unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement
apparent authority
deals with the relationship between the insurer, the agent, and the customer.
fiduciary responsibility
because the agent handles money of the insured and insurer, he/she has a fiduciary responsibility. someone in a position of trust and confidence.
commingling
(illegal) agents to mix premiums collected from applicants with their own personal funds.
fraud
is an intentional misrepresentation or concealment of material fact made by one party in order to cheat another party out of something that has economic value.
waiver
voluntarily giving up of a known right. ex: insurer chose to approve an application and issue a policy without requesting a medical exam they cannot later request a medical exam to for the policy in the future.
estoppel
legal process of preventing one party from reclaiming a right that was waived
parol evidence rule
rule that prevents in a contract from changing the meaning of a written contract by introducing oral or written evidence made prior to the formation of the contract, but ar enot part of the contract.
subrogation
is the right for an insurer to pursue a third party that caused an insurance loss to the insured. this is done as means of recovering the amount of the claim paid to the insured for the loss.
void and voidable contracts:
an agreement that does not have legal effect, and therefore is not a contract. void contracts are not enforceable by either party.
cancellation
the voluntary act of terminating an insurance contract
endorsement
a written form attached to an insurance policy that alters the policy’s coverage, terms or conditions
brokers
broker or independent agent may represent a number of insurance companies under separate contractual agreements
professional liability insurance (errors and omissions)
a professional liability for which producers can be sued for mistakes of putting a policy into effect. under the insurance, the insurer agrees to pay sums that the agent legally is obligated to pay for injuries resulting from professional services
insurable interest
the person acquiring the contract (the applicant) must be subject to loss upon the death, illness, or disability of the person being insured. determined at the time of application
who creates the policy forms to the patient
insurance carrier
