Legal Concepts Vocab & Notes Chap 2

Question 1

A 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. The premiums paid by the applicant is small in relation to the amount that will be paid by the insurance company in the event of a loss.

• Consideration may be unequal
• The outcome depends on chance or uncertain event
• A legal bet is considered an __________ contract

Answer 1

Aleatory

Question 2

A situation in which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal.
It deals with the relationship between the insurer, the agent, and the customer. It is the appearance of authority based on the agent-insurer relationship.

Answer 2

Apparent Authority

Question 3

One who is capable of understanding the contract being agreed to. All involved 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

Answer 3

competent party

Question 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 fall under this.

Answer 4

Conditional Contract

Question 5

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.

Answer 5

Concealment

Question 6

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

Answer 6

Consideration

Question 7

In a __________________ there is only one author - the insurance company. If there is an ambiguity in the contract, the courts always favor the insured over the insurer. Because an insurance contract has been prepared by an insurance company with no negotiation, it is considered a ______________________.

Answer 7

Contract of Adhesion

Question 8

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

Answer 8

Express authority

Question 9

This describes the relationship between the agent or producer and client or company funds. Because the agent handles money of the insured and insurer, he/she has a _____________. 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.

Answer 9

Fiduciary Responsibility

Question 10

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

Answer 10

Health insurance contracts

Question 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.

Answer 11

Implied authority

Question 12

This requires that an individual have a valid concern for the continuation of the life or well-being of the person insured. Without ____________, an insurance contract is not legally enforceable and would be considered a wagering contract. NOTE: ______________only needs to exist at the time of the application (the inception of the contract).

Answer 12

Insurable interest

Question 13

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

In applying the _____________, the insurance company (insurer) is the principal. An agent or producer will always be deemed to represent the insurance company and not the applicant. In regard to the insurance contract, any knowledge of the agent is considered to be the knowledge of the insurance company (insurer). If the agent is working within the conditions of his/her contract, the insurance company is fully responsible.

Answer 13

The law of agency

Question 14

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 _______________.

Without legal effect, the contract would be null and void.

Answer 14

Legal purpose

Question 15

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

Answer 15

Life insurance contracts

Question 16

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.

Answer 16

Offer and acceptance

Question 17

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

Answer 17

Policy

Question 18

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.

Answer 18

Policy Rider

Question 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.

Answer 19

Representations

Question 20

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

Answer 20

Stranger-Originated Life Insurance (STOLl)

Question 21

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

Answer 21

Unilateral Contract

Question 22

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

Answer 22

Utmost Good Faith

Question 23

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

Answer 23

Voidable contract

Question 24

An agreement without legal effect: an invalid contract.

Answer 24

Void Contract

Question 25

Statements made on an application for insurance that are justified to be true; that is, they are exact in every detail as opposed to representations. Statements on applications for insurance are rarely _____________, unless fraud is involved.

Answer 25

Warranties

Question 26

An agreement renouncing 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.

Answer 26

Waiver

Question 27

Agent Authority Types

Answer 27

1. Express
2. Implied
3. Apparent

Question 28

A life insurance policy without insurable interests

Answer 28

Wagering Contract

Question 29

At what point does an informal agreement become a binding contract?

Answer 29

When consideration is provided by one of the parties to the contract.