LEGAL CONCEPTS OF THE INSURANCE CONTRACT

Question 1

life insurance

Answer 1

the insurance company agrees to pay a predetermined amount (face amount or benefit) in exchange for the insured’s consideration (premium)

Question 2

health insurance

Answer 2

the insurance company agrees to pay a percentage of the insured’s medical bills (or benefit) in exchange for consideration (premium)

Question 3

consideration

Answer 3

the insured provides consideration to insurance company with payment of premium.

Question 4

legal purpose

Answer 4

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.

Question 5

offer and acceptance

Answer 5

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.

Question 6

competent parties

Answer 6

all parties must be of legal competence

Question 7

aleatory contract

Answer 7

contracts are unequal exchange.

Question 8

unilateral contract

Answer 8

one sided agreement, where only the insurer is legally bound. only the insurer makes legally enforceable promises in the contract.

Question 9

personal contract

Answer 9

most insurance contracts are personal contracts between the insurance company and the insured individual, not transferable to another person without the insurer’s consent

Question 10

conditional contract

Answer 10

insurance contracts are conditional because certain conditions must be met by all parties in contract.

Question 11

valued vs indemnity

Answer 11

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

Question 12

principle of indemnity

Answer 12

restore the insured to the same financial condition as that which existed prior to the loss. no profit from the contract

Question 13

utmost good faith

Answer 13

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

Question 14

warranties

Answer 14

statement made by the applicant guaranteed to be true (personal info etc) contract can be revoked if untrue

Question 15

representations:

Answer 15

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

Question 16

concealment

Answer 16

withholding information or facts by the applicant (smoker diabetes)

Question 17

insurable interest

Answer 17

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

Question 18

reasonable expectations

Answer 18

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.

Question 19

stranger-originated life insurance

Answer 19

(STOLI) typically illegal

Question 20

authorized agent

Answer 20

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

Question 21

express authority

Answer 21

explicit authority granted to the agent by the insurer as written in the agency contract ex: solicit applications and collect premiums

Question 22

implied authority

Answer 22

the unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement

Question 23

apparent authority

Answer 23

deals with the relationship between the insurer, the agent, and the customer.

Question 24

fiduciary responsibility

Answer 24

because the agent handles money of the insured and insurer, he/she has a fiduciary responsibility. someone in a position of trust and confidence.

Question 25

commingling

Answer 25

(illegal) agents to mix premiums collected from applicants with their own personal funds.

Question 26

fraud

Answer 26

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.

Question 27

waiver

Answer 27

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.

Question 28

estoppel

Answer 28

legal process of preventing one party from reclaiming a right that was waived

Question 29

parol evidence rule

Answer 29

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.

Question 30

subrogation

Answer 30

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.

Question 31

void and voidable contracts:

Answer 31

an agreement that does not have legal effect, and therefore is not a contract. void contracts are not enforceable by either party.

Question 32

cancellation

Answer 32

the voluntary act of terminating an insurance contract

Question 33

endorsement

Answer 33

a written form attached to an insurance policy that alters the policy’s coverage, terms or conditions

Question 34

brokers

Answer 34

broker or independent agent may represent a number of insurance companies under separate contractual agreements

Question 35

professional liability insurance (errors and omissions)

Answer 35

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

Question 36

insurable interest

Answer 36

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

Question 37

who creates the policy forms to the patient

Answer 37

insurance carrier