Policy Provisions and Contract Law

Question 1

What are the 4 elements insurance contracts must have in order to be legally binding?

Answer 1

1. Agreement (offer and acceptance)
2. Consideration
3. Competent parties
4. Legal Purpose

Question 2

What does the term “agreement” mean, in legal binding?

Answer 2

It means that an insurance policy must have an offer and acceptance.

Question 3

What is the binding force of an insurance contract?

Answer 3

The consideration element of a contract

Question 4

What does the term “consideration” mean?

Answer 4

Something of value that both the insurer and insured give give to each other.

Question 5

What is the insurer’s consideration?

Answer 5

The promise to pay for losses

Question 6

What is the insured’s consideration?

Answer 6

The payment of premium and the statements on an application.

Question 7

In forming an insurance contract, when does acceptance usually occur?

Answer 7

When the insurer’s underwriter approves coverage and issues a policy.

Question 8

What does the term “representations” mean in insurance?

Answer 8

These are statements from the insured that are believed to be true.

Question 9

What does the term “material misrepresentation” mean in insurance?

Answer 9

This is a statement, if discovered, would alter the underwriting decision of the insurance company.

Question 10

For a contract to be enforceable by law, the purpose of the contract must be _________….

Answer 10

legal and not against public policy

Question 11

In terms of parties to a contract, which of the following does NOT describe a competent party?

Answer 11

A. The person must be of legal age.
B. The person must be mentally competent to understand the contract.
C. The person must have at least completed secondary education.
D. The person must not be under the influence of drugs or alcohol.

Answer: C

Question 12

If material misrepresentations are intentional, they are considered ______________.

Answer 12

Fraud

Question 13

Define the term “warranty” in insurance

Answer 13

This is an absolute (guaranteed) true statement upon which validity of the insurance policy depends.

Question 14

What does the term “concealment” mean in insurance?

Answer 14

This is a legal term for the intentional withholding of information that is crucial in making a decision.

Question 15

When do binders expire?

Answer 15

When a policy is issued

Question 16

Define the term “binder” is insurance?

Answer 16

This is a temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued.

Question 17

Every property or casualty policy is comprised of the following major components:

Answer 17

1. Declarations
2. Definitions
3. Insurance agreement
4. Additional coverage
5. Conditions
6. Endorsement
7. Exclusions and policy limits

Question 18

Explain the “declarations” section of an insurance policy

Answer 18

This section of an insurance policy contains the basic underwriting information. Such as the insured’s name, address, amount of coverage and premium.

Question 19

Explain the “definitions “ section of an insurance policy

Answer 19

This section of an insurance policy clarifies the terms used in a policy. Usually, words are bold and italicized.

Question 20

Explain the “insurance agreement “ section of an insurance policy

Answer 20

This section of an insurance policy establishes the obligation of the insurance company to provide insurance coverage.

Question 21

Explain the “additional coverage” section of an insurance policy

Answer 21

This section of an insurance policy provides an additional amount of coverage for specific loss expense, at no additional premium.

Question 22

The section of an insurance policy that details what perils are not insured against and what persons are not insured is known as the:

Answer 22

Exclusions section

Question 23

The part of a policy that sets forth the rules of conduct, duties, and obligations of the parties is called?

Answer 23

Conditions section

Question 24

Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses?

Answer 24

Additional coverage section

Question 25

In return for premium, an insurance company must

Answer 25

Be fair in underwriting and pay covered losses.

Question 26

Who would be named on the declarations page of a property or liability policy?

Answer 26

First named insured

Question 27

A person who is not named as an insured on the declarations page of a policy but is protected by the policy is known as the

Answer 27

Additional insured

Question 28

Persons covered under an insurance policy, whether named or not, are known as the

Answer 28

Insureds

Question 29

Notice of claim

Answer 29

A form of statement from the insured to the insurer that a possible claim has occurred.

Question 30

The insurer can only settle the claim by offering to pay the claimant with ___________ of the __________.

Answer 30

1. consent

2. insured

Question 31

How does the “Fair credit reporting act” protect consumers?

Answer 31

It protects consumers against circulation of inaccurate or out of date personal/financial information.

Question 32

How many disclosures does the Gram-Leach Bliley Act require a customer to have?

Answer 32

2 disclosures

Question 33

What does the Fair Credit Reporting Act do?

Answer 33

It regulates consumer reports

Question 34

Which is a statements that is GUARANTEED to be true?

Answer 34

Warranty

Question 35

Who would be named on the declarations page of a property or liability policy?

Answer 35

First named insured

Question 36

What a sworn statement that must be furnished by the insured to the insurer?

Answer 36

Proof of loss