Pc Chapter 2

Question 1

Acceptance

Answer 1

an element of contract law under which one party accepts the offer of another party

Question 2

Aleatory Contract

Answer 2

a contract in which both parties wil not benefit equally. for example, you could buy a car, pay car insurance premuims for ten years, never have an accident and never file a claim then you sell the car without collecting a cent form the insurance company. on the other hand you could buy a car insure it then wrect it three weeks later and collet thousands of dollars

Question 3

Binder

Answer 3

a binder is an instrument that provides interim, temporary coverage. Binders can be oral or written in nature

Question 4

Concealment

Answer 4

the act of hiding a portion of the truth either in connection with a claim or in the application of the policy. concealments, like misrepresentations can void coverage

Question 5

Conditional Contract

Answer 5

Insurance policies are conditional contracts. they cannot be fully executed until something happens in the future.. death, illness, fire or tornado

Question 6

Consideration

Answer 6

in a contract, consideration is something of value. parties to a contract must provide consideration in order for the contract to be legally enforceable. in an insurance policy the company provides the promise to pay benefits as consideration,while the policy owner offeres premium dollars and statements on the application as consideration

Question 7

Contract

Answer 7

an agreement between two or more parties

Question 8

Contract of Adhesion

Answer 8

a contract written entirely by one party and offered to another party exactly as written. An insurance policy is a contract of adhesion because it is written entirely by the insurance comply and offered to the insured “as is” without modification by the insured

Question 9

Doctrine of Reasonable Expectation

Answer 9

a principal applied to an insurance contract which holds that the policy must reasonable preform as expected. it would be unacceptable to buy a homeowners policy and then find it would never cover the damage to your home. Why? because a reasonable person would expect that a homeowners policy is designed to cover a home

Question 10

Doctrine of Utmost Good Faith

Answer 10

a principal applied to an insurance contract which holds both parties ( the insured and the insurance company) must act in good faith for the contract to work as designed

Question 11

Estoppel

Answer 11

a barrier to legal action due to a party’s prior actions. for example a company would be estopped by a court from denying coverage on a property upon which coverage was bound by a producer who was subsequently terminated

Question 12

Expense Ratio

Answer 12

the cost of marketing, underwriting, and servicing an insurance policy as a percentage of premiums

Question 13

Fair Credit Reporting Act

Answer 13

A federal law that dictates the responsibilities of both organizations collect credit information on consumers and entities that seek to investigate a consumers creit. In addition the act also details the rights of the consumer in that investigation

Question 14

Fiduciary

Answer 14

a person who has a financial responsibility to another

Question 15

Fraud

Answer 15

the attempt to materially benefit from a lie. INsurance fraud would resuld from collecting on a claim after lying on an application or in connection to the claim itself

Question 16

Insurable Interest

Answer 16

Insurable interest means having financial stake in property

Question 17

Law of Large Numbers

Answer 17

the concept that states when a large number of similar risks are examined it is usually possible to accurately predict losses

Question 18

Legal Purpose

Answer 18

the principle that all contracts including insurance policies are only valid if they are written for lawful reasons

Question 19

Loss Ratio

Answer 19

a prescrivbed ratio that compared tha amount of premium dollars collected and the amoung of claim dollars paid. a loss ratio of 75% would mean that 75% of dollars collected were paid out as claims

Question 20

Material Fact

Answer 20

a fact that influences coverage in an insurance policy. A fact is considered to be material if the insurance company’s knowledge of the fact would have changed the conditions of the cost of the coverage

Question 21

Misrepresentation

Answer 21

a lie. a material misrepresentation on an application or proof of loss statement can invalidate coverage

Question 22

Offer

Answer 22

the first essential element of a valid contract. one party to the contract must make an offer to another party

Question 23

Personal Contract

Answer 23

Insurance Policies are said to be personal contracts. when a company issues you an auto policy, they are covering your insurance interest in the automobile as opposed to the auto itself. the company might be less inclined to issue a policy on the same car owned by a 17 year old drag racer

Question 24

Premium

Answer 24

money paid by a policy owner to an insurance company to acquire and maintain insurance coverage

Question 25

Rates and Rating

Answer 25

a rate is the cost of a given unit of insurance. Rating is the function of applying the rate to a specific exposure to arrive at a premium cost for that particular exposure. There are class rates, manual rates, merit rates, scheduled rates, experience rates, individual rates, judgment rates, and retrospective rates

Question 26

Representation

Answer 26

a statement of an application that is true to the best of the applications knowledge

Question 27

Underwriting Profit

Answer 27

gross premiums minus overhead, expenses and loss. does not include any investment gains

Question 28

Unilateral Contract

Answer 28

a contract in which only one party makes legally enforceable promises

Question 29

Waiver

Answer 29

giving up a right

Question 30

Warranty

Answer 30

a statement which must be of the absolute truth to have legal standing