Legal Concepts of the Insurance Contract

Question 1

aleatory

Answer 1

feature of contract that there is an element of chance for both parties may not be equal (insurer/insured). premiums paid by insurance co may be small in relation to amt paid if loss occurs

• consideration may be unequal
• outcome depends on chance /uncertain event
• legal bet is considered an aleatory contract

Question 2

apparent authority

Answer 2

relationship between insurer, agent, and the customer. reasonable belief agent has power/authority to bind the principle.

Question 3

consideration

Answer 3

something of value that each interested party gives to each other.

Question 4

contract of adhesion

Answer 4

only one author - the insurance company. contract created with no negotiation.

Question 5

express authority

Answer 5

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

Question 6

health insurance contracts

Answer 6

idemnity contracts and will only reimburse the actual cost of the loss. you cannot make profit

Question 7

implied authority

Answer 7

not specifically granted to the agent in the contract of agency but what common sense dictates the agent has. enable the agent to carry out routine responsibilities

Question 8

insurable interest

Answer 8

individual have valid concern for the continuation of the life/well being of the person insured. if no insurable interest, would be considered wagering contract. only needs to exist at the time of the application

Question 9

the law of agency

Answer 9

est. a relationship where one person is authorized to represent and act for another person/co.

Question 10

Offer and Acceptance

Answer 10

an offer may be made by the applicant by signing the application, paying the first premium, and if necessary, submitting to a physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or, the offer may be made by the co. when no premium payment is submitted with application. Premium pay on the offered policy then constitutes acceptance by the applicant.

Question 11

policy rider

Answer 11

a legal attachment amending a policy. additional benefits or a reduction in benefits are often incorporated in policies by the attachment of either a benefit or an exclusion rider.

Question 12

representations

Answer 12

statements made by applicants on their app. for insurance that they represent as being substantially true to the best of their knowledge

Question 13

stranger-originated life insurance (STOLI)

Answer 13

life ins. arrangements where investors persuaded consumers (usually seniors) to take out new life ins. policies, with the investors names as beneficiary. investors loan money to the insured to pay the premiums for a defined period. the insured ultimately assigns ownership of the policy to the investors, who receive the death benefit when the insured dies. the insured receives additional financial benefits, such as an upfront payment or a loan.

Question 14

waiver

Answer 14

agreement waiving co. liability for a certain type of risk ordinarily covered in the policy. a voluntary giving up of a legal, given right.

Question 15

valued contract

Answer 15

pays a stated sum regardless of actual loss occured

ie life insurance

Question 16

indemnity contract

Answer 16

one that pays an amount equal to the amount of loss

ie fire and health insurance policies

Question 17

warranty

Answer 17

statement made by applicant that is guaranteed to be true in every respect. becomes part of the contract and if not true, can revoke contract

Question 18

representation

Answer 18

statements made by applicant that they consider to be true and accurate to the best of the applicant’s belief.

unlike warranty not a part of the contract. helps insurer to find out whether or not to accept the risk.

Question 19

concealment

Answer 19

applicant fail to disclose material fact. whether intentional or not, injured party has the right to rescind the contract.

Question 20

rescission

Answer 20

contract made null and void.

Question 21

waiver

Answer 21

the voluntary giving up of a legal given right. insurer fails to enforce (waives) a provision of a contract, it cannot later deny a claim based on violation of that provision.

Question 22

estoppel

Answer 22

closely related to estoppel. is the legal impediment to one party denying the consequences of its own actions/deed if such actions result in another party acting in a specific manner or if certain conclusions are drawn. in other words, it is the loss of defense

Question 23

subrogation

Answer 23

the right for an insurer to pursue a third party that caused an insurance loss to the insured. this is done as a means of recovering the amt of the claim paid to he insured for the loss

Question 24

tort law

Answer 24

provide full comp. for proved harms. to right a wrong done to a person and provide relief from the wrongful acts of others, by awarding monetary dmgs as comp.